Members’ voluntary liquidation – MVL

There are usually between 8,000 and 10,000 companies going through members’ voluntary liquidation at any moment on the Companies House register. MVL is the second most common type of liquidation.

The main alternative to a members’ voluntary liquidation is winding the company up by applying to strike the company from the register, which is often preferred if the company has funds of less than £25,000.

Why would a company enter MVL?

The main criterion for a company being liquidated by a members’ voluntary liquidation is that the company is solvent (i.e. it can pay all its debts).

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It may therefore seem strange that such a company would want to cease. But there are many reasons why this might be the case, some of the most common reasons are:

  • Retiring or a change in personal circumstances (e.g. moving country)
  • The business no longer seems viable long term or has fulfilled its purpose
  • External factors and legislation changes – such as IR35, which caused many personal service companies to close and instead work as self-employed
  • Restructuring of a group of companies

Most companies that want to close down in these situations choose MVL where the company has over £25,000 of funds, and the reason for this is how the distributions of funds to shareholders are taxed on winding up. As part of MVL, shareholder distributions are treated as capital distributions, thereby incurring a lower rate of tax than conventional dividends.

If the company is insolvent (unable to pay its debts, now or when due), then the company should consider a creditors’ voluntary liquidation (before it is forced into Compulsory Liquidation).

What is the cost?

The cost is largely driven by the liabilities that are outstanding and if the company has assets that still need to be sold, so it will be different per company. A company with no outstanding liabilities or assets still to be sold will be looking at fees in the region of £1,000 to £1,500. Companies with outstanding liabilities and/or assets to sell will likely be charged between £1,500 and £5,000.

What will happen?

Once agreed that this is the route that the company will take, the directors will sign a declaration of solvency, hold a general meeting of shareholders to agree the company is wound up and appoint an insolvency practitioner as a liquidator. Yes – you do appoint an insolvency practitioner even though your company is solvent.

The liquidator will then work to wind up the company and distribute any remaining funds to the shareholders.

How long does it take?

A fairly standard MVL will take about eight months from start to finish. However, the shareholders will usually receive a majority of their funds from the company within three months.

The company, however, can be handed over to the liquidator very quickly, often within a week.

How to start MVL proceedings

A company may seek the advice of an insolvency practitioner at the start of the process. This would likely not cost any more to do, although it is not necessary for the first steps. Initially the company directors must:

  • Prepare and sign a declaration of solvency (or complete form 4.25 in Scotland which includes a declaration of solvency):
    • This must be signed in the presence of a solicitor or notary public
    • It must include the name and address of the company and its directors
    • State how long it will take the company to pay its debts (must be no longer than 12 months from the date the company is liquidated)
    • Contain a statement of the company’s assets and liabilities
  • Hold a general meeting of shareholders (having issued the required notice) within five weeks of signing the declaration of solvency, passing:
  • Advertise the resolution to wind up the company in the The Gazette (or The Edinburgh Gazette) within 14 days of the general meeting
  • Send the signed declaration of solvency to Companies House (or form 4.25 to the Accountants in Bankruptcy in Scotland) within 15 days of the general meeting.

The appointed liquidator will then work to close down the company.

Liquidation of the company

The liquidator will then take care of winding the company down and eventually getting it removed from the register. They will often even have been involved with many of the prior steps, including sending the resolutions and declarations to the relevant places mentioned above.

Once in control of the company they will:

  • Inform HMRC and Companies House of the intention to close the company
  • Write to the company’s bank to obtain access to the company’s funds
  • Ask for written indemnity to be signed (explained below) if shareholders are wanting payments soon
  • Look to sell any remaining company assets

Where a distribution of funds to shareholders is desired early in the process, the liquidator will take care of this once they have secured access to the company’s bank account. This distribution will keep some funds in the company for:

  • Paying outstanding creditors (including HMRC)
  • Paying the liquidator’s costs
  • A buffer for any additional unexpected costs

They will then sell any remaining assets, pay any creditors and settle any outstanding dues with HMRC.

Once completed and final clearance has been obtained from HMRC the final shareholder distribution can be made and the liquidator will request that the company is removed from the Companies House register. Three months later Companies House will remove the company from the register.

What is the written indemnity for?

To allow shareholders to receive some of the funds early (before the company is closed completely) they must agree to effectively return the funds needed should an unexpected creditor require paying. The written indemnity formalises exactly this.

Obviously, this shouldn’t ever happen as the company’s creditors should be known and documented (or paid already). However, it is possible that a creditor that was unaccounted for (or unknown) appears late in the process and requires payment.

Can I start a new company?

In short, yes. However, there is legislation (Targeted Anti-Avoidance Rule – TAAR) to prevent starting, or investing in, a company in the same (or similar) area – as this might suggest the original company was liquidated for the purpose of obtaining favourable tax incentives.

This is a complicated area so if you are starting a new, similar company you are best to consult your insolvency practitioner about this.

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