Members Voluntary Liquidation

MVL is a formal voluntary winding-up procedure initiated by the company and its shareholders when the entity is solvent but no longer needs to trade or continue. It differs fundamentally from creditor’s voluntary liquidation, which is a formal insolvency process, by focusing on the orderly cessation of trading and distribution of the company’s remaining assets to members, once creditors are paid in full.

Under section 84 IA86, the process commences upon a resolution passed by shareholders with at least 75% of the company’s voting rights. A licensed insolvency practitioner (known as a liquidator) is appointed. Their function is to collect in and realise the company’s assets to distribute the proceeds to the company’s creditors and, providing there is a surplus, its members (section 107 IA86). A liquidator is generally entitled to be paid for their time out of the assets of the company, and inform the company’s shareholders of their time costs.

The hallmark of an MVL is that before the process starts directors are required to swear a statutory declaration of solvency under section 89 IA86. This is a formal declaration to affirm their belief that, having made a full inquiry into the company’s affairs, they consider that the company will be able to pay all its debts, plus interest, within a set period of no more than 12 months (section 89 IA86). Directors must consider carefully whether the company will be able to accomplish this, as they risk committing a criminal offence if they did not reasonably believe all the company’s debts could be paid in the selected period.

MVL is particularly suited to family-owned businesses, investment vehicles, or dormant subsidiaries to allow owners to extract value efficiently. It allows a definitive end to a company’s existence, avoiding the limbo of dormancy and much of the risk of informal dissolution.

Falsely making a declaration of solvency can lead to severe penalties, including imprisonment or a fine under section 89(4) IA86. This means that determining whether your company is eligible for MVL is a critical first hurdle. As mentioned above, a company may only enter MVL if it can demonstrably pay its debts in full, plus interest, within 12 months. Directors must conduct a thorough review of a company’s assets and liabilities, consulting accountants if necessary, to ensure they can support their view that the company will be able to do so.

The MVL process commences with board preparations, whereby directors verify the company’s solvency and give the statutory declaration required by section 89 IA96. This must be filed at Companies House within 5 weeks of when the company will formally enter liquidation, accompanied by a statement of affairs setting out the company’s assets and liabilities.

The first stage is then to convene a meeting of the company’s shareholders, at which they will decide whether to pass the resolution to wind it up under section 84(1)(b) IA86  and appoint the company’s choice of liquidator. The winding-up will commence officially once the resolution is passed, with the appointment advertised in the London Gazette within 14 days under section 85 IA86.

The liquidator will then assume control and take steps to collect in the company’s assets to pay its creditors within the period set out in the declaration of solvency. Subject to the liquidator’s remuneration, and creditor claims, the company’s remaining assets can be distributed to its members as a dividend from the winding-up. The liquidator must produce annual progress reports for circulation to shareholders (section 92A IA86).

Once the winding-up has concluded, the liquidator will prepare a comprehensive report known as his final account (section 94 IA86). This will be presented at a final general meeting, circulated to members, and lodged at Companies House. The company will then be dissolved by the Registrar of Companies within 3 months (section 201(2) IA86).

MVL offers distinct advantages over informal dissolution (strike-off under the Companies Act 2006), particularly for asset-rich companies. Dissolution suits dormant companies with minimal assets, but risks objections and proceedings from third-parties who wish to restore the company to the register to pursue claims.

As an MVL is a formal documented process, it is considerably rarer for the company to be restored. The liquidator will pay the creditors as part of his appointment, and the public nature of the process reduces the risk that unknown or overlooked debts will return to haunt directors years after the fact.

MVL can also afford shareholders with tax advantages because of the reliefs and rates that apply to distributions as against income. This can save shareholders many thousands of pounds.

An MVL will take longer to conclude than dissolving your company by strike-off, and the costs of the process are likely to be higher. However, the formality of an MVL can avoid substantial headaches that might otherwise arise in due course, and the appointed liquidator will assume much of the burden of evaluating how best to maximise a company’s assets to pay creditors and dividends.