Members Voluntary Liquidation is a formal process allowing solvent companies to be liquidated resulting in any surplus funds/assets to be distributed to shareholders in a tax efficient way.
The process is initiated by the company’s directors, who must pass a resolution to wind up the company and appoint a licensed insolvency practitioner as the liquidator.
The liquidator is responsible for the sale of the company’s assets, paying off its creditors, and distributing any remaining funds to the company’s shareholders.
Process for Members Voluntary Liquidation
Members Voluntary Liquidation is a long and complicated process which requires precision to execute. Here is MVL process for you to follow;
Step 1
Assessment of Company Solvency
Initial Assessment: The directors must first assess the company’s financial situation to ensure it is solvent. This means verifying that the company can pay off all its debts in full within 12 months.
Preparation of Financial Statements: Updated and accurate financial statements should be prepared, including a balance sheet, income statement, and cash flow statement.
Step 2
Declaration of Solvency
The directors must prepare a Declaration of Solvency. This document includes a statement of the company’s assets and liabilities and is a legal declaration that the company can meet its debts.
Each director needs to sign the Declaration of Solvency in the presence of a solicitor or a notary public, affirming their belief in the company’s solvency.
Step 3
Shareholders Resolution
The directors must call a General Meeting of the shareholders to propose the voluntary liquidation. At the meeting, shareholders need to pass a special resolution for liquidation.
This requires a 75% majority in favour of the resolution. The resolution must be advertised in The Gazette within 14 days to inform the public and potential creditors.
Step 4
Appointment of a Liquidator
The shareholders will appoint a licensed insolvency practitioner to act as the liquidator. The liquidator’s appointment is formalized at the General Meeting or shortly after.
Step 5
Liquidation Process by the Liquidator
The liquidator assumes control of the company, settles all outstanding debts, and collects any money owed to the company. The liquidator is responsible for liquidating (selling) the company’s assets in an orderly manner.
Step 6
Distribution of Remaining Assets
After paying off all debts, the liquidator calculates the amount available for distribution to shareholders. The remaining assets or the proceeds from the sale of assets are distributed to the shareholders according to their shareholding percentages.
Step 7
Finalising the Liquidation
The liquidator prepares final accounts that detail how the liquidation was conducted and how the assets were distributed. A final General Meeting is held to present the accounts to the shareholders and receive their approval.
After the final meeting, the liquidator sends a copy of the final accounts to the registrar. The company is then dissolved three months after the registrar receives these accounts.
Step 8
Post-Liquidation Requirements
The liquidator must notify the registrar of companies and The Gazette about the company’s dissolution. Additionally, liquidation records must be kept for a specific period as per legal requirements.
Questions & Answers about Members Voluntary Liquidation (MVL)
Here are some frequently asked questions that will help you understand the MVL process.
Are MVLs a Tax-Efficient Way to Close a Business?
Yes, MVLs are often considered a tax-efficient way to close a business. The assets distributed to shareholders through MVL are capital distributions and subject to Capital Gains Tax, which can be more favourable compared to Income Tax rates (payable upon distributions made as dividends pre-liquidation). Additionally, Entrepreneurs’ Relief may apply, potentially reducing the tax rate further for qualifying shareholders.
How Much Does MVL Cost?
The cost of an MVL can vary depending on the complexity of the company’s affairs. Generally, the fees are associated with the appointment of the liquidator and the process of winding up the business. It’s advisable to discuss the estimated costs with a licensed insolvency practitioner for a clear understanding.
How Long Does MVL Take?
The duration of an MVL largely depends on the size and complexity of the company. Typically, the process can be completed within 6 to 12 months. This allows time for settling all debts, distributing assets, and completing all necessary legal and tax formalities.
What's the Difference Between MVL and Dissolving a Company?
The key difference lies in the process and purpose. Dissolving a company, also known as striking off, is a simpler and less formal process than MVL. It’s suitable for companies with no assets or liabilities. MVL, on the other hand, is a formal liquidation process for solvent companies with assets to distribute to shareholders.
What are the Director's Responsibilities in MVL?
Directors play a pivotal role in the MVL process. Their responsibilities include:
- Ensuring the company is solvent and can pay its debts.
- Preparing and submitting the Declaration of Solvency.
- Convening a shareholders’ meeting to pass the liquidation resolution.
- Appointing a licensed insolvency practitioner.
- Providing all necessary information and assistance to the liquidator.
Authorised by the Insolvency Practitioners Association
Members of the Association of Business Recovery Professionals (R3)
Member of Association of Chartered Certified Accountants
Member of the Institute of Chartered Accountants in England and Wales
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