If the Directors and Shareholders want to close a solvent company they will need to consider a Members Voluntary Liquidation (MVL). This process can be used if the business is still trading and has assets.
- When can Members Voluntary Liquidation be used?
- Can a MVL be used if the company is trading?
- Is MVL suitable if company debt cannot be paid immediately?
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Use Members Voluntary Liquidation to close a solvent company
If the shareholders no longer want a solvent company they may try to sell the business as a going concern. However they do not have to. They can decide to simply close it.
The owners may not want to go through a sale process. Perhaps they want to retire and the assets in the company have significant sale value which they prefer to just realise. Alternatively the business structure of a larger corporate may need to be changed.
A Members Voluntary Liquidation can only be used if a company is in a position to pay its debts. If it has debts that it is unable to repay in full within 12 months Creditors Voluntary Liquidation should be considered.
Use MVL if the company is still trading
If you have a company you no longer need you might think the simplest way to dispose of it would be to strike it off. However the problem with Strike Off is that it is only suitable in certain circumstances. Namely that the company must have no assets, no debts and must not have traded in the last three months.
A company may not be trading in the sense that it is no longer be taking on new contracts. However it may have work in progress that it is completing and payments that still have to be collected. It may also have assets such as equipment and good will. Where this is the case it cannot simply be struck off.
Use MVL if the company can pay off its debts within 1 year
In order to qualify for Members Voluntary Liquidation a company does not necessarily have to be able to pay all its debt immediately. However it must be able to do so within 12 months. This could be from funds raised through the sale of assets or funds due to be collected from completed work.
The Directors must be in a position to make a sworn legal declaration that the company is solvent. If after a liquidator is appointed it is found that the company is insolvent the MVL can no longer continue. The closure must then be conducted with Creditors Voluntary Liquidation.
During the Liquidation process all of the business assets will be sold and turned into cash. All staff will be made redundant and paid in accordance to their redundancy terms. Only then will any cash or remaining company assets will be shared out between the owners of the business.