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A Members Voluntary Liquidation (MVL) is not strictly an insolvency procedure as it is the procedure used to wind up the affairs of a company which is solvent and has paid or can pay all its debts.  The MVL process can only be used when the directors and shareholders are satisfied that the company is able to meet all its financial obligations and that the value of the company’s assets is more than the total amount the company owes to all its creditors – employees, HMRC, trade suppliers and other creditors.

Why should a company go into Members Voluntary Liquidation?

The MVL procedure is used when the shareholders of a solvent company decide that the company has come to the end of its useful life and it is in the interests of the shareholders to realise the company's assets and distribute the proceeds to the shareholders according to the value of their shareholdings.

Members Voluntary Liquidation - The Procedure

The directors of the company meet as a board and resolve to convene a meeting of the company's shareholders. The company's shareholders are invited to resolve that the company be placed into Members Voluntary Liquidation.

The directors complete a formal declaration that the company is solvent and this will include a statement of the company's assets and liabilities demonstrating this to be true. Notice of the MVL will be advertised in the London Gazette and the company's records at Companies House will be updated with details of the winding up resolution to show the company is liquidation.

Only a licensed insolvency practitioner can act as liquidator in an MVL. The insolvency practitioner will also need to be satisfied that the company is solvent and can pay all its debts before the insolvency practitioner will agree to act as the liquidator. If there is any possible doubt that the company may not be able to meet all its liabilities the insolvency practitioner may request that he is provided with a suitable form of indemnity to protect himself from the risk of being personally liable for any of the company's debts.

After being appointed the liquidator will collect in and sell any assets of the company which have not already been realised. The liquidator will check the company's books and records to make sure that all creditors claims are dealt with. Any outstanding creditors will be paid in full by the liquidator including any outstanding amounts owed to HMRC. After paying all liabilities of the company the liquidator will pay the remaining cash to the shareholders of the company in the proportions due to them. A final notice will then be placed in the London Gazette and the Registrar of Companies will be requested to dissolve the company.

Members Voluntary Liquidation and Creditors Voluntary Liquidation

A major difference between a CVL and an MVL is that the directors of the company which is going into MVL must complete a formal declaration of solvency. This statement is a serious commitment by the directors and must not be made unless the directors are certain that the company can meet all its financial obligations and that the company's assets are worth more than the company's liabilities. If the directors of the company are found to have made a false declaration of solvency either deliberately or even carelessly they can face the possibility of fines and being banned from acting as directors. In extreme cases there is the possibility of imprisonment if a fraudulent declaration has been made.

Sometimes unexpected claims can be received from creditors who are owed money by the company. In come circumstances it will be necessary to estimate some creditors claims as at the time of commencement of the MVL these claims cannot be valued with certainty. If a claim is received which then results in the company becoming insolvent the liquidator will be obliged to convene a meeting of the company's creditors and the company will then go through the CVL procedure.

If an MVL changes to a CVL the directors of the company may find they are faced with hostile creditors who propose to appoint a liquidator of their choice rather than the directors' preferred liquidator. Creditors may be concerned that the MVL process has been used to the creditors' disadvantage as the creditors have not had any involvement in the process up to this point in time or any oversight of the liquidator's actions in selling the assets of the company.

For all these reasons it is important to obtain professional advice and guidance from an experienced insolvency practitioner before deciding to proceed with an MVL. If you have any questions about MVLs or any other questions concerning insolvency related matters call now 0800 7710 073 for a free phone consultation and speak directly to an experienced insolvency practitioner.

Members Voluntary Liquidation - Tax Advantages

The MVL procedure can often be tax advantageous for shareholders as the funds paid out to the shareholders by the liquidator will be taxed as capital gains rather than income when received by the shareholders. This is likely to mean that less overall tax will be payable by the shareholders than if the funds had been distributed as dividends which would be subject to income tax. As the funds realised by the liquidator in an MVL would be subject to Capital Gains Tax they may be eligible for capital reliefs including "Entrepreneur's Relief" which could reduce the tax payable by shareholders even further. If "Entrepreneur's Relief" is available this can reduce the Capital Gains Tax charge from 18% to 10% on any gains up to £10 million. To qualify for this relief you must hold at least 5% of the shares in the company and the company must have been a 'trading' company.

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