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Reasons a members’ voluntary liquidation is required

There are many reasons why a members’ voluntary liquidation may be required, and there are some very good reasons that directors looking to close their company choose this route above other forms of insolvency.

In short, a members’ voluntary liquidation (MVL) is a formal process to close a solvent company. 

Before that process can begin, the company’s directors are required by law to sign a statement to the effect that the company:

  • is solvent.
  • can pay all its taxes.
  • can pay all its creditors.
  • can meet all its contractual obligations.

Once this statement is agreed and signed, a shareholders or members’ meeting must be called, for the purpose of appointing a licensed Insolvency Practitioner as liquidator. The meeting must take place within five weeks of the declaration being signed.

Once in place, the licensed Insolvency Practitioner will:

  • realise the company’s assets.
  • settle any legal disputes.
  • pay any outstanding creditors.
  • distribute the remaining funds to the company’s shareholders/members.

Once the liquidator has completed these formalities and received clearance from HMRC, the company will be dissolved and formally removed from the companies register.

Why an MVL?

Reasons why a members’ voluntary liquidation may be required include:

  • a company was set up for a specific purpose or contract and that has been fulfilled.
  • the directors/owners are looking to retire and there is no one to take over the running of the business.
  • the business is not viable in the long-term, so the directors want to close it down before it becomes loss-making.
  • another reason an MVL may be required is because the company was initially set up to take advantage of the IR35 rules, but the company is no longer required as they are now reverting to full time employment.

An MVL might be used as a way of re-organising a group of companies where one of its subsidiaries is no longer required or may have become dormant.

It’s important to remember the tax advantages of an MVL. Dividends arising from an MVL are classified as capital distribution rather than income distribution, which means they are subject not to income tax but to capital gains tax, which has a lower rate.

How do you execute an MVL?

Only a licensed Insolvency Practitioner can be appointed as a liquidator for an MVL and you will need to speak to one who will explain and guide you through the process. 

The appointment of the licensed Insolvency Practitioner will be published in The Gazette.

By this point, the directors will have fulfilled all their obligations. Going forward, the liquidator takes control of the company and the directors’ executive powers cease.

The liquidator will realise the company’s assets, settle any creditor claims and distribute any surplus funds to the shareholders/members.

A Members’ Voluntary Liquidation is the quickest, easiest way to liquidate a solvent company. It’s a good option for a solvent company that has naturally reached the end of its life.

If you’re considering an MVL then you’ll need the help of a licensed Insolvency Practitioner. We offer a free consultation to any company thinking of going down this route, explaining the process, what is expected of you and your fellow directors, and how we can help. Call our team on 01455 555 444 or email us at [email protected]