Members Voluntary Liquidation

What Is a Members’ Voluntary Liquidation?

A Members’ Voluntary Liquidation (MVL) is a way for company directors to close down a business they no longer want to run. It can only be used in situations where the company is financially solvent, which means that the value of its assets outweighs that of its liabilities, and it is capable of paying any outstanding debts to its creditors. In other words, a Members’ Voluntary Liquidation is only suitable in circumstances where there is no financial obligation to wind up the business.

A majority of the company’s directors must agree to liquidate before an MVL can move ahead, and the company must be declared financially solvent. There are other approaches that may apply in circumstances where the business is insolvent, as we will explain below. However, if you cannot secure agreement from the company’s directors, there may also be other solutions you should consider that will still deliver the result you are looking for.

If you want to know more about Members’ Voluntary Liquidations, need to understand the process of liquidating your company or would like advice on whether or not this is the right approach for you, speak to the expert team at Company Insolvency Advice. We also have significant experience in recovering insolvent companies, rescuing them from the need to close down. Whatever your circumstances, contact us today to learn how we can help. Call us today on 0800 999 0666 or use our online enquiry form to request a call back.

Advantages of a Members’ Voluntary Liquidation

• A tax-efficient way to close a solvent company
• An immediate first distribution can be made if funds permit
• You may be able to take advantage of entrepreneur’s relief

The Members’ Voluntary Liquidation Process

The first stage of the MVL process is to instruct a licensed Insolvency Practitioner to help you. This is true even despite the fact that this process is only suitable for solvent companies. A Practitioner can help to examine the financial situation of the company, including reviewing all of its assets and liabilities, to determine whether or not it can be legally declared solvent. Following this process, the company’s directors must write and sign a declaration of solvency in the presence of a solicitor, in order for the liquidation process to begin, which must later be filed with Companies House.

Why Would A Business Choose An MVL?

If you are determined to close down your business, a Members’ Voluntary Liquidation is a tax-efficient way to do so, provided the business is solvent. While you may have to pay Capital Gains Tax on any profits you make from the sale of the business, you may also be able to benefit from Business Asset Disposal Relief, also known as Entrepreneurs’ Relief. This allows you to pay tax on any gains you made as a result of the sale at a flat rate of 10%, rather than the 20% that would otherwise apply in most circumstances.

Depending on the funds available within the business, the Insolvency Practitioner may be able to make a distribution immediately. For these reasons, if you are certain that closing your business is the right approach for you, a Members’ Voluntary Liquidation is often the right way to do so.

Once the declaration is made, the directors must convene a General Meeting of Members within the next five weeks. At this meeting, members will agree a date upon which the business will close and pass a Resolution for voluntary winding up – at least 75% of shareholders must vote in favour of the motion. At that stage, the company can appoint a Liquidator to begin the process of closing the company.

The winding up of the business will be reported in the Gazette, in order to notify all relevant parties. The Liquidator will then begin their part of the process, closing the company’s bank accounts, realising any assets and paying any outstanding debts to creditors. If any funds remain, they will be distributed to company shareholders. The Insolvency Practitioner will produce a final report, distribute this to the relevant stakeholders, and notify Companies House. After three months, the company will be formally dissolved.

Can I Close Down An Insolvent Business?

If your company cannot pay its debts, or its liabilities exceed its assets, it is considered insolvent and in such cases, a Members’ Voluntary Liquidation does not apply. If it is necessary, there are other ways to close down an insolvent business, including through a Creditors’ Voluntary Liquidation. This is a mechanism in which you convene a Meeting of Creditors with a proposal to liquidate the business and realise any assets.

However, closing a company is often not the only way (nor the best way) to resolve the challenges of corporate debt or other financial problems. Instead, there may be a number of company rescue solutions that might be useful in the circumstances your company is facing. These approaches can restore a business to solvency and help it to recover and flourish. They will not apply in every situation, but the sooner you act after noticing that your business is facing financial difficulties, the more options you will have available, and the better the prospects of your company. 

If you are concerned that your company may need to close due to financial difficulties or pressure from creditors, contact the team at Company Insolvency Advice today. We can provide fast, free advice on the rescue solutions that could return your company to solvency, and enable you to pay your debts without the need to close your business. If this proves to be the only available option, we can also support you through the process to ensure the fairest possible outcome for all parties.

Call us today on 0800 999 0666 to learn how we could help, or use our online enquiry form to request a call back at your convenience.

How Long Does a Members’ Voluntary Liquidation Take?

The formal process to close down a solvent company under an MVL generally follows the same structure, but delays can occur in a number of ways. For example, if it takes a long time to sell the company’s assets, or to reach an agreement with the company’s shareholders, this can introduce delays into the process. While this means it is impossible to estimate the length of time that the process could take, we can explain how the process unfolds and where delays are typically encountered.

• Resolution and declaration: A general meeting is called, and shareholders pass a resolution for voluntary liquidation. Alongside this, the directors must make a Declaration of Solvency, indicating that the company can pay its debts within 12 months of the liquidation. These documents are then filed with Companies House. 
• Appointing a liquidator: A licensed insolvency practitioner is appointed as the liquidator, who takes control of winding up the company.
• Notice in The Gazette: The liquidator will usually place a notice of the MVL in The Gazette, which is the UK’s official public record. This is to inform creditors and give them a chance to submit any claims.
• Asset liquidation: The liquidator sells off the company’s assets, pays any debts and liabilities, and settles any outstanding tax obligations. This is one area where delays can arise, as once the liquidator takes control of the business, it will be up to manage the process. They have a professional obligation to sell assets for a fair market price and to ensure they draw the maximum value from the business for shareholders. There can also be administrative delays. For this reason, it is important to choose your appointed insolvency practitioner carefully and make sure they understand your business in detail before they begin.
• Capital distribution: Once all debts have been paid, the remaining funds are distributed to shareholders. 
• Final meeting and dissolution: The liquidator holds a final general meeting and prepares an account of how the liquidation has been conducted. Another notice is placed in The Gazette, and barring any issues, the company is usually dissolved three months later. If issues arise, this can also cause delays, but this is rare at this late stage of proceedings.
  
  

In straightforward cases, the MVL process can take a few months. However, more complex cases with a large number of assets, creditors, or legal complications can take much longer, sometimes even years.

This is another reason why working with an expert advisor or insolvency practitioner at an early stage can help. They can talk about your company’s affairs in detail and give you a sense of how complicated the MVL process will be as a result. From there, you will have a better sense of how long this might take and be able to approach this process with realistic expectations.

How much does a Members’ Voluntary Liquidation cost?

While a solvent company does not usually provoke the same concerns as an insolvent company, there are still financial matters to consider before taking this approach. For example, there are costs involved in an MVL that a company’s shareholders and directors might need to consider before moving ahead with the liquidation.

• Statutory filing fees: There may be costs associated with filing the necessary documents with Companies House, although these are generally nominal.
• Insolvency practitioner’s fees: The fees for hiring a licensed insolvency practitioner can vary, as the cost will depend on the complexity of the liquidation process and the amount of work involved. You can discuss this before appointing a liquidator, which can help you to estimate the costs associated with the MVL and determine whether this is the right course of action.
• Legal and professional fees: You may also incur costs for legal advice, accountancy services, and other professional fees. These won’t be necessary in all cases, but it is important to factor this in if you are calculating and estimating costs.
• Notice costs: Placing notices in The Gazette is a statutory requirement for informing creditors and the public of the company’s liquidation. The costs for these notices are generally not excessive but we have included this in the interests of completeness.
• Disbursements: These are additional out-of-pocket expenses the liquidator may incur during the process, such as bank charges for handling funds, asset valuation costs, and postage. They are generally not significant but are added to the overall bill.
• VAT: Don’t forget that Value Added Tax (or VAT) will also be added to many of these costs.
  
  

While there are some expenses associated with an MVL, it is one of the most tax-efficient ways to close a profitable company, pay off any outstanding creditors and keep shareholders happy.

Members’ Voluntary Liquidation vs Strike Off – What Is the Difference?

An MVL and a strike off are both methods for closing a solvent company in the UK, but they differ in terms of complexity, cost, and suitability for various situations. Striking off is a simpler, less formal procedure, typically suited for dormant or small companies with no (or minimal) assets or liabilities. There’s less scope for tax planning in terms of asset distribution to shareholders, as assets must be distributed before the striking off application is made.

The process is generally quicker than an MVL and the cost is usually lower, with the main expense being the Companies House filing fee. However, this is partly because assets have already been distributed. That means that for solvent companies that have significant assets, a strike off is not a suitable option.

Striking off doesn’t provide the same level of legal finality as an MVL. The company can be easily restored to the register by a creditor, member, or other interested parties within a certain period if they have a valid reason. Creditors are not formally involved in the process, which leaves open the possibility for them to submit claims against the directors if it later turns out that the company was not actually free of debts.

All in all, it is best to seek expert advice before moving forward with either a liquidation or a strike off. You must consider tax benefits, fees and other factors, many of which will be specific to your business. That means there is no one-size-fits-all approach. To avoid creditor claims and conflicts, speak to an experienced advisor about closing your business in the way that will best suit your circumstances.