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How Does A Members’ Voluntary Liquidation Work?

A Members’ Voluntary Liquidation (“MVL”) is a procedure which facilities the winding up of a solvent company, with assets distributed to shareholders.

This guide explains how an MVL works and what a successful MVL looks like.

What are MVLs?

A Members’ Voluntary Liquidation is a formal process that business owners undertake to dissolve a solvent company.  A member is a company shareholder and typically we deal with owner-managed companies, where the director is also a shareholder and therefore involved in the decision making and management of the business.

To clarify, a company is solvent when it can pay all of its debts in full.

A Declaration of Solvency must be prepared and sworn by the majority of a company’s directors which is a declaration that the company is able to pay all of its debts within 12 months.   

Declaration of Solvency facts

According to the Register of Companies, there are approximately 8,000-10,000 companies subject to a MVL at any time during the financial year.

Company members have to appoint a licensed Insolvency Practitioner (“IP”) to act as liquidator of the company.

Here at BABR we are qualified Licensed Insolvency Practitioners, who are regulated by the ICAEW. www.babr.co.uk

You may be thinking of taking the MVL pathway for your company but might not be 100% convinced that this is right for you.   Therefore considering your options and reviewing our MVL criteria may assist in helping you reach this decision.

Why use an MVL?

An MVL often results in shareholders being able to take advantage of significant tax savings on distributions.

In order for an MVL to be beneficial to members, we would suggest that there needs to be a minimum of £25,000 available once creditors, including any tax liabilities, have been paid.  This should result in the process being worthwhile when comparing the tax savings to the costs of the liquidation process.

Directors and shareholders of a company may decide that a solvent winding up of the company’s affairs is the best pathway for a variety of other reasons, such as:

  • Retirement of company directors
  • The business coming to its natural end
  • Restructuring of a group of companies
  • Government legislation

An MVL allows for an orderly winding up of the company’s affairs. It is handled by a professional liquidator allowing the company’s directors and shareholders to focus their attention elsewhere. It gives certainty that any liabilities have been properly dealt with, that all tax matters are complete, and that all relevant authorities are properly notified of the winding up of the company’s affairs.

Upon closure of the liquidation, the company will be dissolved and stakeholders will have certainty that all matters have been finalised.

Real life MVL story

BABR recently successfully assisted a client which was a family-owned company which owned a property as part of the business.  The family took the decision to close the company and wanted to release the property for the benefit of shareholders. 

As the life of the business had come to its end, the directors chose to formally close the company by way of an MVL.

The family wanted to ensure that the proportion of the assets linked to the property were correctly allocated to all of the shareholders and were able to do this through an MVL.

This was achieved through the appointment of BABR’s IPs, who effectively managed the whole process and distributed the company’s assets to the relevant shareholders as part of the liquidation process. 

After undertaking their statutory duties, obtaining relevant clearances and distributing the company’s assets amongst the shareholders, the company was dissolved.

Differences between MVL and CVL

Members’ Voluntary Liquidation

Creditors’ Voluntary Liquidation

  • Only applies to solvent companies.
  • Company directors and/or shareholders instigate an MVL and instruct an IP to act as liquidator.
  • The liquidator distributes assets to shareholders, after ensuring all creditors have been repaid in full.
  • The liquidator will obtain clearances from HMRC that all tax matters have been finalised and any liabilities settled.
  • There is no formal investigation into the conduct of a director or risk of disqualification.
  • Appropriate for insolvent companies, where liabilities are greater than assets, there are cashflow difficulties or the threat of a winding up petition.
  • Whilst a CVL is also a Director led process, it is not usually embarked upon with a return to members in mind.
  • The liquidator is primarily responsible to the company’s creditors as opposed to its shareholders and creditors have a say in how the liquidation is handled.
  • The Liquidator also realises and distributes assets, but predominately only to preferential and unsecured creditors.
  • A director’s conduct is investigated by the Liquidator and a confidential report is submitted to the Insolvency Services, who will consider whether it is in the public interest to initiate disqualification proceedings.

The MVL process

Selecting an MVL is a business-specific decision to take, so it’s helpful to know the MVL stages ahead of time.

The decision to commence the MVL process and appoint a suitable IP as Liquidator will be passed at a general meeting of the company’s shareholders (75% of shareholders have to be in agreement to proceed).  Once the IP has been engaged, the directors and proposed liquidator will work closely with the company’s directors and members to ensure that the winding up process is as smooth as possible.

BABR can help to guide the company through the processes and prepare relevant documentation

Steps of the MVL process:

  • The company directors hold a meeting and pass a resolution stating that the company is solvent and able to pay its debts in full within a period not exceeding 12 months.
  • The directors resolve to hold a meeting of shareholders to consider a resolution to wind up the company and appoint liquidators and relevant notices of the meeting are circulated to the company’s members.
  • A Declaration of Solvency is prepared and sworn by a majority of directors.
  • Within 5 weeks of the Declaration of Solvency being sworn, the shareholders’ meeting takes place and shareholders resolve to wind up the company and appoint a liquidator.
  • Notices of the winding up and the liquidator’s appointment filed at Companies House alongside the Declaration of Solvency.
  • The appointment is also advertised in The London Gazette.
  • Notices are sent to any creditors as well as to HM Revenue & Customs to notify them of the liquidation.
  • The liquidator will take steps to realise assets and distribute them to creditors and shareholders.
  • In certain cases, assets such as property or loans can be distributed in specie, meaning they do not have to be sold or collected by a liquidator, but are distributed in tact to the company’s shareholders for them to take ownership of.
  • Shareholder distributions are likely to be taxed as capital, not income.  Furthermore, Business Asset Disposal Relief should be available to reduce the rate of tax paid to 10%.
  • Once all these actions are complete, the Liquidator will seek clearance from HM Revenue and Customs (“HMRC”) that all tax matters have been finalised
  • The liquidator will issue a final account and will take steps to finalise the MVL and be released from office.
  • The Company will be dissolved 3 months after the Liquidator has been released from office.

MVL timeframe

If all liabilities are settled prior to the appointment of a Liquidator and any outstanding HMRC matters are resolved, this can help speed up the MVL process and ensure a more prompt distribution to shareholders.

Where a company has common directors and shareholders, some of the stages above can be dealt with together.

A general timeframe from instructing BABR to shareholder distribution is about 3 months*, although this can take longer if the company has a complex assets to distribute.

*A liquidator will seek confirmation form HMRC that there are no outstanding liabilities before making any final distributions to shareholders. HMRC is currently working through a backlog in providing those clearances, so timeframes may be affected by this situation.

Average MVL cost

The costs involved will be influenced by the number of shareholders, the company’s structure, the nature of the company’s assets and any outstanding liabilities requiring payment by the Liquidator.

A typical MVL is likely to cost approximately £3,000, but the costs will increase based on the nature of the above-mentioned complexities.

What does a successful MVL look like?

In the hands of a professional Insolvency Practitioner, an MVL is generally a smooth process of closing a solvent company that’s come to the end of its lifespan and distributing its assets to its shareholders.

Key MVL benefits:

  • Strategic exit for owner-managed businesses.
  • Timely distribution of a company’s assets to its shareholders.
  • Likely to result in an advantageous taxation benefits. 
  • Dealt with by an experienced professional.
  • Dissolution of the Company at completion of the MVL.

How we can help

Our role is to support company directors, shareholders and their accountants in managing the structured wind-down and to coordinate the formalities of placing the company into MVL.

At BABR, we will ensure that all liabilities have been paid before distributing any surplus to the company’s shareholders.

We will also do all we can to expedite this process, so it happens as quickly as possible for shareholders.

Book your free consultation now

If an MVL sounds relevant to your situation, contact us today for a free consultation. You can arrange a time and a date that works for you and meet with a qualified licensed insolvency practitioner, in person or over video call.

We’ll enquire about the company’s background, circumstances and will require a summary of the current financial position in order to provide you with a no-obligation competitive MVL quote for transparency and peace of mind.