Members Voluntary Liquidation

Photo by Karl M on Unsplash

Members Voluntary Liquidation [MVL]

An MVL (Members Voluntary Liquidation) is a very common procedure and is often a good way to close down a company that is no longer needed.

When to use an MVL

An Members Voluntary Liquidation is only appropriate where a company is solvent and so is expected to be able to pay all its debts when they are due. In an MVL a liquidator is appointed to liquidate all the company’s assets, to pay any outstanding creditors and then to distribute the remaining funds between the shareholders in proportion to their shareholdings. Before initiating an MVL it will be important to verify that the MVL is necessary and that it is the best available option. We can help with this assessment. Contact us for a free, no obligation consultation. This can be done on the phone, by video call or face-to-face at our office in York or elsewhere.

Here are some typical scenarios

  • Business sale/retirement – Members Voluntary Liquidations are frequently used after a business has been sold on or following a pre-planned wind down of the business by the directors. Where that’s the case the MVL will be relatively straight-forward.
  • Trading – On the other hand, if the business has been in a live trading situation recently the liquidator will be dealing with many consequences of the business’ operations which will add to the complexity, cost and duration of the liquidation.
  • Restructuring – MVLs can also be useful as part of a restructuring of a successful business where business partners have decided to go their separate ways and wish to split their business. Here the MVL can be used in live trading situations and operations can continue unaffected throughout.
  • As well as trading companies, many of the MVLs we handle are investment or personal service companies

MVLs (Members Voluntary Liquidations) are under the control of the shareholders

Implementing an MVL

Once it has been established a Members Voluntary Liquidation is the best option for your company we can quickly move to get the MVL underway.

a) Planning. Before starting work we will need to get a feel for the business in order to establish the scope of work required and to identify the most likely issues. [This may have been covered in sufficient detail in previous discussions to evaluate the possible options.]

b) Engagement. Once the scope of work has been established we will issue a formal engagement letter for the board’s approval. We will also need to be able to verify the identity of the company’s controlling directors and shareholders. A bill may also be raised to cover work and disbursements up to the date of liquidation though sometimes payment can be deferred.

c) Information required. If there are any creditors we will need all relevant details (amounts owed, addresses, references). The accounting records will normally need to be made available too. The directors, with our assistance, will need to prepare a Declaration of Solvency of the company (a financial snapshot). This should include an allowance for both prospective and contingent liabilities (e.g. anticipated redundancy claims, warranty claims, legal claims or claims arising from breach of contract).

d) Initiation. Both the board and the shareholders will need to approve any decision to put the company into MVL. It may often be possible to have both meetings at short notice and on the same day. The notice will be advertised in the London Gazette and will also go to any creditors.

What does an MVL cost?

Fees for MVLs vary depending on the amount of work required. If the business has already been wound down and trading has ceased some time before this will naturally reduce the amount of work involved for the liquidator and in most cases a fixed fee can be agreed at the outset to cover all pre-liquidation work, the liquidation itself and any disbursements required. Where the business is in a live trading situation immediately prior to liquidation and is to be wound down this will naturally add to the complexity and therefore the cost of the liquidation.

Members Voluntary Liquidations can be highly tax efficient for shareholders as distributions made by the liquidator are normally treated as capital income and many shareholders will qualify for entrepreneurs’ relief. The tax saving is generally well in excess of the cost of the liquidation.

Practical issues, personal consequences and other concerns

Practical issues

Any kind of company can go into MVL. Each business and each situation has its own unique set of circumstances and practical issues. Liquidators expect this and know their work isn’t finished until each issue is resolved one way or another. Make sure you raise all potential issues with your liquidator, particularly those unique to your trade or circumstances.

In many Members Voluntary Liquidations the business has already been wound down and all or nearly all operational issues have been dealt with by the directors. If this is not the case then the liquidator may need to deal with these as part of the liquidation. Such issues might include collecting book debts, closing utilities accounts and dealing with lease termination.

Personal consequences

There are generally no personally detrimental consequences for directors and shareholders of companies that go into Members Voluntary Liquidation.

Other concerns

Once appointed as liquidator the powers of the directors cease and directors may feel some apprehension about handing the company reins over to the liquidator. For most directors a Members Voluntary Liquidation will be a new experience. It is important to find a liquidator you can trust because it is them you will be relying on to guide you. The liquidator will likely be in touch with the directors and shareholders on a regular basis and may seek their assistance to deal with practical matters where that’s likely to smooth the course of the liquidation.

In a Members Voluntary Liquidation the liquidator must secure the company’s accounting records but (unlike in insolvent liquidations) is not generally obliged to conduct any investigations into the trading of the company.

Distributions of funds to shareholders

Once appointed the liquidator will write to all creditors and will advertise for any claims against the company. When the liquidator feels comfortable that funds are available to cover all claims he can consider distributing surplus funds to shareholders. (This process can sometimes be accelerated where the shareholders are willing to indemnify the liquidator for any distributions he makes.)

Duration of the liquidation

The Members Voluntary Liquidation cannot be completed until clearance has been received from HMRC. Therefore, one of the focuses of any liquidation will be to ensure all returns have been submitted and liabilities paid. Once the liquidation is complete the liquidator will prepare a report of the liquidation for the shareholders. If this is approved by the shareholders the report can be submitted to Companies House and the liquidation can be closed. Many of the simplest MVLs can be completed well within 12 months of appointment. Dissolution at Companies House should automatically follow 3 months later.

Why choose Silva?

Silva is a small firm and that has key benefits for you as a client. From your own experience you will know that with larger firms it’s often difficult to make direct contact with the person (or even the team) who is working for you. It’s more difficult still to contact the person making the decisions (even assuming it is a person and not an algorithm).

Your company is important to you and going through a liquidation is inevitably going to be an unfamiliar process. Good service and communication in the Members Voluntary Liquidation will be essential for both for you and the company’s other stakeholders. You need to engage a liquidator you can trust. You will need to feel comfortable that the issues you raise will be dealt with. You will want to know who you can contact with queries. You do not want to have to repeat yourself or chase issues through.

At Silva you can receive consistent personal service to ensure you have the maximum control of the process. Most clients have a single point of contact and a single case worker from the first meeting all the way through to completion. If you wish you can meet your liquidator or, alternatively, all communications could be electronic.

As well as all of the above, Silva’s Members Voluntary Liquidations are quick, low cost and normally have a fixed upfront fee.

Our liquidator is Jeremy Wood. Jeremy Wood is a licensed Insolvency Practitioner, a Chartered Accountant with the ICAEW and a member of R3 (the Association of Business Recovery Professionals. Find out more here.

We serve York, Malton, Wetherby, Goole, Pocklington, Harrogate and Ripon. A face-to-face meeting is not required though so if you or the business is in another part of the country that is no problem.

Information made available on this website in any form is for information purposes only. It is not, and should not be taken as, legal advice. You should not rely on, or take or fail to take any action based upon this information. Never disregard professional legal advice or delay in seeking legal advice because of something you have read on this website. Silva professionals will be pleased to discuss resolutions to specific legal concerns you may have.