Once a Members Voluntary Liquidation (MVL) starts the Directors hand over control to the Liquidator. They also have to repay any debt they owe to the company. Any employees will be made redundant.
- Can Directors work for other companies during an MVL?
- Are Directors responsible for company debts?
- What happens to employees when a Liquidator is appointed?
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Directors hand over control to the Liquidator
When a Members Voluntary Liquidation begins and a is Liquidator appointed they take over control of the company. The Directors must then stop acting on behalf of the company. All decisions must be made by the Liquidator from then on.
The directors ability to work for other companies is not affected. However they must recognise that the Liquidator will make a report of their conduct to the Insolvency Service. This is still required even though the company is solvent.
The liquidator is required to report on any person who has acted as a director of the company for the past three (3) years. If they feel a director has knowingly allowed the company to trade while insolvent they must inform the Insolvency Service of this. The Insolvency Service must then decide whether or not to carry out a further investigation.
If an accusation of wrongful trading is upheld by the Court it could result in the individual being banned from acting as a director of any company for up to 15 years. This would be unusual in the case of a solvent company.
Directors are not responsible for the Company Debts
If Members Voluntary Liquidation is used the company must be solvent. In other words it can repay its debts from its own resources within 12 months. As such generally speaking Directors are not at risk of of having to repay any of the company’s debts.
Even if a Director has given a personal guarantee this will not be called in as the company will pay everything that it owes from its own assets.
However if a Director has borrowed money from the company they are responsible for repaying this. The Liquidator will collect in all money owed to the company including director’s loans. Legal action can be taken against a director if they do not repay this debt.
Will Employees be made redundant?
The purpose of a Members Voluntary Liquidation is to close the company. As such once the Liquidator is appointed they will begin a process of making any employees redundant.
Depending on the nature of the company some employees may be kept on. For example they may be required to help the orderly closure of a manufacturing plant. Alternatively they may be needed to complete any work in progress.
All employees will be made redundant under the standard terms of their employment. Given the company is solvent they can expect to be paid their full notice period. They will also receive any redundancy payment they are entitled to.