Members Voluntary Liquidation

Voluntary liquidation of a company is a process initiated by its own members or shareholders. This is distinct from a compulsory liquidation, which is begun by an outside body, normally a creditor.

A members voluntary liquidation by a company that is insolvent, one which is unable to pay its debts, is called a creditors voluntary liquidation. If the company is solvent, meaning it can settle all outstanding bills, the process is referred to a members voluntary liquidation (MVL).

Liquidation is the cessation of business and the converting of all assets into cash. This is then used to pay off remaining creditors and any remaining surplus is returned to the shareholders of the company.

Because the MVL does not require a meeting of creditors it is less expensive than a creditors voluntary liquidation. It is often used by organisations wanting to restructure themselves, or as a way for shareholders to withdraw their investment.

The Process of Members Voluntary Liquidation

When is have been decided that an MVL is the correct course of action, the directors call the shareholders to an extraordinary meeting. Before the meeting the directors must make a statutory declaration of solvency, stating that the company is capable of meeting all its liabilities, in full, within twelve months.

Once the shareholders have resolved to liquidate the company, they appoint an insolvency practitioner to act as the liquidator. It is then the liquidator’s role to dispose of remaining assets and ensure that all the creditors are paid. They then manage distribution of surplus funds to the shareholders.

Because the directors have declared that the company is solvent, the liquidator is not required to investigate their conduct. Nor do they need to scrutinise the events which led up to the initiation of the MVL.

However, it is possible that the liquidator discovers the company is not solvent after all, and cannot fully discharge its debts. If this happens the MVL process is converted into a creditors voluntary liquidation. The directors become liable for a fine or imprisonment, or both, for having wrongfully made a statutory declaration of solvency.

Assuming that MVL goes ahead without any difficulties and having completed their responsibilities the liquidator calls a final meeting of the shareholders to report on the process. If the shareholders are satisfied that the liquidation is complete, they release the liquidator from their responsibilities.

The company is struck off the register at Companies House within three months of the final meeting being held. It can still be reinstated within two years if a creditor wants to make a claim against it.

Making a Tidy Exit

An MVL can only occur where there is no insolvency. For this reason it is a tidy and straight-forward matter, assuming that the liquidator discovers nothing unpleasant as they go about their duties.

It’s essential that when directors make a statutory declaration of solvency, they do so in absolute confidence. It’s good practice to get external advice at this point, for experts familiar with the process and who understand the sort of issues that might come up.

At Touch Financial we have decades of experience helping a wide range of commercial organisations. We know that every business is unique, which is why we work in partnership with our customers. It’s important for us to take the time to understand their situation before developing potential solutions.

If you are considering a members voluntary liquidation, are looking to restructure your business operations, or a facing challenges linked to insolvency, why not get in touch with us? One of our specialists will spend time with you in a no-obligation consultation. This allows you, and us, to determine whether we can help one another. Why not give us a call today?

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