A Members’ Voluntary Liquidation (“MVL”) is a process used to wind up the affairs of a solvent company. The MVL process is typically used where a company has come to the end of its natural life, where reorganisations have occurred resulting in dormant companies, or the procedure can also be utilised as part of a restructuring process.
The process effectively brings the company to a formal end and distributes any remaining assets through a cash or an ‘in specie’ distribution to its shareholders. The MVL process facilitates a controlled shareholder exit thus allowing them to realise their investment in a tax-efficient manner. Despite its solvent nature, the MVL process is laid down in the Insolvency Act 1986 (“IA86”).
Timeline of an MVL
The basic timeline of an MVL is as follows:
- Appointment of a licenced Insolvency Practitioner (“IP”)
- Declaration of Solvency sworn
- Winding-up resolution passed
- Advertisement in The Gazette and creditors informed
- Realisation of assets and distribution of funds
- Company removed from the register at Companies House.
The full timeline for an MVL from start to completion is typically between six months and a year, but this depends on the complexity of the business.
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The MVL process
Appointing a licenced IP
A licenced IP is needed to administer an MVL because it is a formal procedure. Initially, however, directors and shareholders will seek advice and guidance from an IP on whether an MVL is right for their company. If so, an IP will be appointed to oversee and administer the liquidation and closure of the business.
Declaration of Solvency
All, or a majority, of the directors must swear a Declaration of Solvency before the process can go ahead. This effectively states hat the company can repay all of its debts, including contingent liabilities, within 12 months of the date of the declaration together with statutory interest.
Resolution to wind-up the company
A resolution to wind-up the company via an MVL and appoint liquidators must be passed within five weeks of the Declaration of Solvency being sworn. Shareholders cast their votes and, if 75% of members vote in favour, the process can begin.
Advertisement in The Gazette and notifying creditors
The Gazette is the official public record in the UK and, within 14 days of the resolution being made, an advert must be placed to announce the liquidation of the company. This alerts creditors to the members’ intentions and enables claims to eb made for repayment. Liquidators must also officially inform creditors of the liquidation within 28 days of their appointment.
Realisation of assets and distribution of funds
All company assets must be realised by the liquidators, creditors fully repaid and remaining funds distributed to shareholders. Distributions are taxed as capital rather than income following an MVL.
Removal of company from the register
The company is dissolved three months after the liquidators’ final account has been filed at Companies House.
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