Members Voluntary Liquidation & Solvent Liquidation in Cambridge

Who is a Members Voluntary Liquidation (MVL) for?

Used when your Cambridge based company has sold its business or wants to distribute the company funds to its members as capital. This can be achieved through a Members Voluntary Liquidation.

What is the process of a MVL?

There are a number of steps that are needed to place the company into liquidation and that the liquidator must carry out. The main steps are set out below:

Declaration of Solvency

The directors must be certain that the company is solvent. This means that the company must be able to pay all of its debts together with statutory interest within 12 months. To demonstrate this a Declaration of Solvency must be sworn in front of solicitor or commissioner for oaths. We will prepare this document based on the information that you or your accountant provides. The Declaration of Solvency must be sworn by all (or at least a majority) of the Board of directors and that declaration must be made within five weeks of the liquidation. The liquidator will file this with Companies House once he has been appointed.

It is important that the directors believe that the company is solvent before starting the members voluntary liquidation process or they may be liable to imprisonment or a fine.

Getting the Company into Liquidation

After the declaration of solvency has been sworn, the shareholders or members of the company need to pass a special resolution to place the company into liquidation. This resolution requires 75% of the members to approve it. The resolution can either be a written resolution or passed at a shareholders meeting called for the purpose. The shareholders will also appoint an insolvency practitioner to act as liquidator. It may seem strange that an insolvency practitioner is required to liquidate a solvent company, but only insolvency practitioners can act as liquidators under the rules governing liquidations set out in the Insolvency Act 1986.

The Company is now in Liquidation

Once the members have passed the resolutions the company is in liquidation, the liquidator is appointed to deal with all aspects of the company. The directors’ powers cease and it will be the liquidator that becomes responsible for closing the company. =On appointment the liquidator has to advertise the special resolution and that they have been appointed in the London Gazette. It is usual to also advertise at this time for any claims that creditors may have. They are given 21 days to submit a claim.

The liquidator will open a bank account for the company and transfer the company’s fund into it. He will also deal with any remaining assets. They will either be sold or where it is desirable, they can also be transferred to the members directly. The latter process is called a distribution in specie and is especially useful for freehold property that a company may be holding.

It is quite common that directors have loans to or from the company. The liquidator can usually deal with these when he makes a distribution but some planning may be required ahead of the liquidation to make sure the numbers add up and the shareholders all get the share of the company’s assets that their shareholding gives them.

Creditor claims and statutory interest

Usually most creditors claims are straight forward and have often been settled prior to the liquidation commencing. However, some creditors may not be agreed or cannot be paid prior to liquidation. In these circumstances the liquidator has to go through a process of agreeing claims and allowing creditors to challenge his decision. This can sometimes hold up the distribution of funds to shareholders.

If creditors are paid by the liquidator he has to pay statutory interest unless the creditor agrees to waive it. The payment of statutory interest mainly effects the final corporation tax bill. Where possible we advise that this bill is paid before liquidation.

Distributions to shareholders

This is the reason the company has gone into a members voluntary liquidation – to return funds to the shareholders. An MVL is just one way that funds can be returned to members but the key advantage of an MVL is that the funds distributed by the liquidator are capital distributions not income. As such they are subject to capital gains tax and are eligible in most cases for entrepreneurs relief. Any tax due on a distribution for a liquidation will form part of the shareholders personal tax affairs and so we encourage shareholders to take their own tax advice.

The liquidator will usually distribute funds after the notice to claim to creditors has expired. They will usually hold some funds back until they have all the necessary tax clearances and then distribute the balance before bringing the liquidation to an end.

The end of the Liquidation

When the liquidator is ready to close the liquidation they will send a draft final report to shareholders setting out the funds that they have received and how they have disbursed them. The liquidation will formally close eight weeks after the final report or earlier if shareholders agree. The company then be dissolved.

Please get in touch. We don’t charge for an initial meeting and we are always happy to chat. Call me on 01223 803445, email or click the chat button

Advantages and Disadvantages

Advantages of an MVL

Distributions by a liquidator are a capital receipt for the shareholder
You may qualify for entrepreneurs relief on the distribution
Tax efficient withdrawal of funds
Can be used to repay overdrawn directors loan accounts if sufficient assets available

Disadvantages of an MVL

Frequently Asked Questions

Most frequent questions and answers about a Members Voluntary Liquidation

How much does it cost?

We would agree a fixed fee with you for dealing with the liquidation based on the information you provide. In addition to our fees there are some necessary advertising and an insurance bond that must be taken out for your protection. Our fixed fees start from £2,500 plus VAT and disbursements

Can I keep some of the assets?

If appropriate we could distribute some of the funds by giving you the assets rather than selling them. This is known as an in specie distribution

How quickly will I get the funds?

Normally most of the funds are distributed once the notice to claim has expired. A minimum of 21 days is required for this notice. Earlier distributions may be possible but careful consideration is needed beforehand

What protection do I have once you are liquidator?

We are regulated by the ICAEW. We are also required to hold a general bond and a specific bond. All funds are initially held in our client account prior to liquidation and transferred to a new case specific account once we are appointed. Further details can be provided if you require