When a company decides to wind up its operations and dissolve, there are several options available depending on its financial situation. One such option is members voluntary liquidation (MVL), which is a formal process where a solvent company is closed down voluntarily by its shareholders. This process is often chosen when the shareholders decide that the company has served its purpose and it is time to distribute its assets and move on to other ventures.
In this article, we will take a closer look at what members voluntary liquidation involves, the steps involved in the process, and why a company may choose this route.
What is members voluntary liquidation (MVL)?
Members Voluntary Liquidation (MVL) is a solvent liquidation process that allows shareholders to wind up a company voluntarily. Unlike a Creditors Voluntary Liquidation (CVL), where the company is insolvent and unable to pay its debts, an MVL is initiated by the shareholders when they believe that the company has no further use and wish to distribute its assets. This process is governed by the Insolvency Act 1986 and requires the appointment of a licensed insolvency practitioner to act as the liquidator.
Steps Involved in Members Voluntary Liquidation
1. Directors’ Declaration of Solvency: The first step in initiating an MVL is for the directors of the company to make a sworn statement declaring that the company is solvent and can pay off all its debts within a period not exceeding 12 months. This declaration should be made no more than five weeks before the resolution to wind up the company.
2. Shareholder Resolution: Once the directors have made the solvency declaration, a shareholders’ meeting should be called to pass a special resolution in favor of winding up the company voluntarily. This resolution should be passed by a majority of 75% or more of the shareholders.
3. Appointment of Liquidator: Following the passing of the resolution, a licensed insolvency practitioner should be appointed as the liquidator of the company. The liquidator will be responsible for realizing the company’s assets, settling its liabilities, and distributing any remaining funds to the shareholders.
4. Realization of Assets: The liquidator will take control of the company’s assets and begin the process of selling them off to raise funds. This may involve selling off the company’s property, inventory, intellectual property, or any other valuable assets.
5. Distribution of Funds: Once all the company’s assets have been realized and its liabilities have been settled, the liquidator will distribute any remaining funds to the shareholders in accordance with their shareholding.
6. Dissolution of the Company: Once all the funds have been distributed, the liquidator will file the necessary paperwork with the Registrar of Companies to formally dissolve the company. The company will then be struck off the register and cease to exist.
Why Choose Members Voluntary Liquidation?
There are several reasons why a company may choose to go through Members Voluntary Liquidation instead of other winding-up procedures. Some of the main reasons include:
– Tax Efficiency: MVL can be a tax-efficient way to distribute any remaining funds to shareholders, especially if the company has funds in excess of £25,000. By distributing these funds as capital rather than income, shareholders may benefit from lower tax rates.
– Control: Unlike a compulsory liquidation, where the company’s fate is decided by creditors, an MVL allows shareholders to retain more control over the winding-up process and the distribution of assets.
– Professionalism: By appointing a licensed insolvency practitioner as the liquidator, shareholders can ensure that the winding-up process is conducted in a professional and efficient manner, minimizing the risk of any legal issues or challenges.
In conclusion, Members Voluntary Liquidation is a formal process that allows solvent companies to wind up their operations voluntarily. By following the steps outlined above and working with a licensed insolvency practitioner, shareholders can ensure a smooth and efficient winding-up process that maximizes returns and minimizes risks. If you believe that your company has served its purpose and it is time to dissolve, MVL may be the right option for you.