What is Members Voluntary Liquidation?
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A Members’ Voluntary Liquidation (MVL) is available to solvent companies looking to conclude operations. Unlike other liquidation types, an MVL isn't viable for insolvent entities. In this process, the company must possess sufficient assets to satisfy all obligations and interest within a 12-month period."
This solvent liquidation allows the company’s assets to be distributed in a tax-efficient manner by the liquidator and can help protect against future claims.
An MVL often applies when:
The company has fulfilled its purpose.
Company directors wish to retire or no longer want to manage the firm.
The business is solvent but not making profit.
A merger is taking place.
Directors and shareholders are no longer willing to work together.
Directors and shareholders want to close the business and distribute money in a tax-efficient way.
Shareholders may apply entrepreneurs’ relief laws to potentially lower tax rates on liquidator distributions to 10%.
An MVL is a straight forward and simple process: company closure, creditor settlements, and distributing remaining funds among shareholders.
​​What happens during a Members’ Voluntary Liquidation?
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Step One
The primary stage involves preparing a Declaration of Solvency, completed at a minimum of five weeks before initiating Members' Voluntary Liquidation. This declaration requires affirmation from a majority of directors and witnessed by a solicitor.
Step Two
Proof of solvency leading up to the liquidation date must be submitted to HMRC. This includes sending copies of accounts and returns, along with final payment details, VAT, and PAYE records.
Step Three
Meetings of the company’s directors and shareholders will then be called to pass various resolutions.
These meetings will confirm the date of the winding up of the company and the Declaration of Solvency will be noted as signed. The name of the Liquidator to be appointed will also be confirmed at these meetings.
Step Four
Subsequent to this, gatherings of both company directors and shareholders will be convened to approve multiple resolutions.
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These meetings will establish the company's winding-up date and acknowledge the signed Declaration of Solvency. Additionally, the appointed Liquidator's name will be confirmed during these proceedings.
Step Five
An insolvency practitioner is engaged to manage the process in an MVL. In an MVL, shareholders appoint the insolvency practitioner to act as the Liquidator. Their role involves overseeing the business's winding-up process, reclaiming funds from the company's bank accounts, liquidating assets, and settling creditor claims. Once creditors are paid, the insolvency practitioner facilitates the distribution of remaining funds to shareholders.
A Declaration of Solvency is a formal legal document prepared by the directors of a company in the context of a Members' Voluntary Liquidation (MVL). It affirms that the company is solvent and capable of paying its debts, including interest, in full within a specified timeframe, usually 12 months.
This declaration is a critical step before initiating an MVL, providing assurance to shareholders, creditors, and regulatory authorities that the company can be wound up without the need for a compulsory liquidation process.
What is a Declaration of Solvency?
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How long does a Members Voluntary Liquidation process take?
The Members' Voluntary Liquidation (MVL) process is required to be completed within a maximum of one year. This timeframe is in alignment with the Declaration of Solvency, which states that the company can settle its debts within 12 months.
The appointed liquidator oversees the efficient winding down of the company's affairs, asset distribution to creditors and shareholders, ensuring compliance with this specified time frame.