Members Voluntary Liquidation (MVL)
Members’ Voluntary Liquidation (“MVL”) – An MVL is the voluntary winding up of a solvent company. The purpose of an MVL is to bring the life of a company to a formal end. This may be done for business restructuring purposes or to facilitate a tax efficient mechanism to return assets back to the company’s shareholders. Some specific reasons for a company to be placed into MVL are listed below.
- Retirement of directors
- Reorganisation of a group of companies
- The company no longer trades or has a purpose
- Restructuring of company assets
- Shareholders wishing to leave their position and extract their investment
To qualify for an MVL, the directors of the company need to be satisfied that the company is solvent. The directors will be required to swear a declaration of solvency confirming that all of the company’s liabilities will be satisfied in full within twelve months.
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When is an MVL appropriate?
An MVL is appropriate when a company is solvent and the members no longer wish for it to continue to exist. This could be for a number of reasons, highlighted above.
Why cant I just strike the company off?
A company is struck off when an application is made to Companies House for the company to be removed from the register and dissolved. This can only be done if the company has not been active for the three months prior. As from 1st March 2012 if a company undergoes an informal winding up procedure, HMRC will allow distributions up to a maximum of £25,000 to be treated as capital. Should total distributions exceed £25,000 then distributions will be treated as dividend income. However, should the company enter into an MVL, the £25,000 limit will not apply and distributions may be treated as a capital receipt and have the tax advantage of being subject to capital gains tax rather than income tax.
Do i need to go to any meetings?
The directors are required to hold a board meeting to consider the liquidation and approve the declaration of solvency. They then pass a resolution to call an extraordinary general meeting of the members. At this meeting, resolutions are passed to place the company into liquidation and appoint a liquidator.
Will the MVL be advertised?
An advertisement requesting the submission of creditors’ claims and noting the appointment of a liquidator will be advertised in the London Gazette.
What will happen to the employees?
All employees will have to be made redundant either in advance of, or at the date of the appointment of the liquidator. All outstanding monies owed to former employees will need to be payed either in advance of the liquidation or within twelve months of the liquidation, in accordance with the statutory declaration of solvency.
What are the liquidator’s duties?
The liquidator’s primary responsibility is for the timely and efficient realisation of the company’s assets and the distribution of those realised funds to creditors and members in priority order.
Can the assets be distributed between the members without being realised?
The liquidator can distribute the physical assets of a company to the members. This is known as a ’distribution in specie’. For example, the company may hold shares in another company. These could be distributed to the members at fair value, rather than the liquidator selling the shares and distributing the funds to the shareholders.
Will the directors conduct be investigated by the liquidator?
No. There is no requirement for an investigation into the directors conduct with an MVL.
How much will an MVL cost?
The liquidator is usually remunerated on a time cost basis. However, the fees are negotiable, are frequently capped and will depend upon the complexity of the case.
What will happen if it is discovered that the company is insolvent?
The company will be required to be placed into a creditor’s voluntary liquidation (CVL).
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