What is Members’ Voluntary Liquidation?

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What is Members’ Voluntary Liquidation?

A company does not have to be insolvent in order to be placed into liquidation. Shareholders can choose to place a Company into a Members’ Voluntary Liquidation (MVL) if they want to wind up a solvent Company, and it is in a position to repay any outstanding creditors in full within twelve months of winding up. 

MVL: The Process

In order to place a company into liquidation, the directors must convene a meeting of the Company’s shareholders to consider the proposal, and if in agreement, the shareholders pass a special resolution to wind the Company up voluntarily and an ordinary resolution to appoint their chosen Liquidator. Notice to the shareholders  of the meeting to consider the passing of the ‘Special Resolution’ requires a statutory notice period of fourteen 14 days, however if 95% of the shareholders are in agreement this notice period can be waived by signing a ’Consent to Short Notice’.

The Declaration of Solvency

The process starts with the directors of the Company signing a ‘Declaration of Solvency’. In so doing the directors confirm that ”We, representing the majority of the directors’ do solemnly and sincerely declare that we have made full enquiry into the affairs of the Company, and that, having done so, we have formed the opinion that the Company will be able to pay its debts in full, together with interest at the official rate within a period of twelve months, from the commencement of the winding up”.

The Declaration of Solvency also includes a list of the Company’s assets and liabilities and details of the estimated surplus to be distributed to its shareholders. Once completed the document is sworn and signed in the presence of a Solicitor in their capacity as a ‘Commissioner of Oaths’.

It is important to note that falsely signing a Declaration of Solvency is a criminal offence for which the director can be liable to a fine or imprisonment. It is therefore essential that the directors ensure that they conduct an accurate assessment of the Company before embarking on this course of action.  The Company’s Accountant, or a Licensed Insolvency Practitioner, will be able to advise you on the financial position of your company to ensure that the correct course of action is taken.

Appointment of the Liquidator

Once appointed, the liquidator takes full responsibility for all Company matters such as Statutory filing, advertising, insuring the Company’s assets, paying any outstanding creditor claims, obtaining tax clearance and distributing the Company’s net assets to the Company’s member(s) inline with there respective shareholdings.  

Tax on Capital Distributions & Business Asset Disposal Relief

The distributions from a Members Voluntary Liquidation are subject to capital gains tax as opposed to income tax which would incur a higher rate of tax. This makes the process extremely tax efficient,  and in some cases shareholders may also be able to benefit from Business Asset Disposal Relief, which will reduce Capital Gains Tax on their respective distributions from 20% to 10%. This can apply to any Capital gains up to £1 million.

Any Shareholders who have held at least 5% of the voting rights for a minimum of two years can be eligible for this relief (which was formerly known as Entrepreneurs Relief).

When Would an MVL be Appropriate?

If the Company has in excess of £25,000 in share capital and assets, it is unable to pursue a strike off application if the shareholders wish for the funds received by them to be treated as capital, and therefore subject to lower tax rates.  As such, liquidation is the most effective and efficient way to appropriately close the Company by appointing a Licensed Insolvency Practitioner to act as Liquidator for the purposes of the Winding up.

If you have any questions, or think an MVL would be right for your company, please contact us on 01326 340579 to book a free telephone consultation.