Members Voluntary Liquidation (MVL) is the process of closing a solvent company in an orderly fashion. The process is voluntary because the directors and shareholders make the decision to close the business. The company is not forced to close by one of its creditors due to insolvency.
- Is a Members Voluntary Liquidation right for your company?
- Find out how to start an MVL
- How will and MVL affect Directors and Employees?
- What does Member’s Voluntary Liquidation cost?
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When is Member’s Voluntary Liquidation used?
Member’s Voluntary Liquidation is used if the shareholders of a solvent company simply want to stop trading. There may be many reasons for this. The owners may want to focus on other businesses. The business structure of a corporate may need to be changed or the owners may simply wish to retire and realise their assets.
During the closure process all of the business assets will be sold and turned into cash. All staff will be made redundant and any outstanding creditors paid in full. Any cash or remaining company assets will be divided between the shareholders.
An MVL can only be used if the company is solvent. The directors will have to make a legal declaration that the company is able to pay off all of its debts in full within 12 months from the date a liquidator is appointed.
How to start Member’s Voluntary Liquidation
The Directors and Shareholders of the company must first agree that they want to close the business. The directors make a declaration that the company is solvent. They must confirm that all creditors can be paid in full within 12 months.
An Insolvency Practitioner is then appointed who will become the Liquidator. They are responsible for selling the assets of the company. The proceeds are used to pay off all creditors and make any redundancy payments.
Once all the assets have been realised and creditors paid the Liquidator will divide any remaining cash between the shareholders according to their shareholding. They will then strike off the company from the company register.
Member’s Voluntary Liquidation Directors and Employees
Once a Liquidator is appointed the Directors lose their control. However they are free to continue with directorships of any other company. Because the company is solvent it will be able to repay all of its debts. As such the directors will not be liable for the repayment of any debts they have personally guaranteed.
The Liquidator must also submit a report on the conduct of the directors to the Insolvency Service. This will state whether or not in the liquidator’s opinion the directors have acted properly. In a Member’s Voluntary Liquidation it would be unusual for the liquidator to believe that any directors had acted improperly.
Given the company is to be closed all employees will be made redundant. The Liquidator will ensure that employees are paid according to their contracted notice period.
Cost of Member’s Voluntary Liquidation
The cost of Liquidation largely depends on the size and complexity of the company and the work involved. The fees are normally paid from the proceeds of the sale of the company’s assets and the collection of any debts owed.