Everything you need to know about Members’ Voluntary Liquidation

What is a Members’ Voluntary Liquidation?

A members’ voluntary liquidation (‘MVL’) is a solvent liquidation, one where all creditors are paid in full, and there’s a return to shareholders.

An MVL is normally carried out where:

1. A company or group of companies is being restructured; or
2. The owner of a business is selling up or retiring.

Often a MVL is chosen as the most appropriate route for a company because it is a tax efficient procedure which can legitimately save you money.  It sometimes goes hand in hand with Entrepreneurs Relief – read our separate blog on this by clicking here.

What’s the process? 

• You / your accountant call us to arrange to meet up. You tell us your company’s name, we carry out some preliminary online searches, including at Companies House.
• You meet with the me (it can be helpful if you bring your accountant with you) to identify all of the options that might be available to you, having regard to what you are trying to achieve and when. We agree a draft plan.
• I send you a letter of engagement to sign. Once you have returned the signed letter, I will carry out money laundering checks on the company, you as directors, and the principal shareholders.  We do this online, where possible, to keep costs down and avoid unnecessary work by you and your shareholders.
• We will then liaise with you and your accountants over the detail of the plan:
  1. What do we, you and your accountants do, and when?
  2. What money / assets are distributed, and when?This is agreed by an exchange of emails so everyone knows what is expected of them and when.  This plan typically includes things such as the conversion by you of assets into cash to be handed over to the liquidator (getting you to do this keeps the costs down), your accountants’ completion of final returns to the Revenue, deregistering for VAT, PAYE / NIC, and the timing and quantum of distributions.
• We then prepare the paperwork necessary to put the company into liquidation:
  1. A Board meeting to confirm the plan to liquidate and our appointment to assist you;
  2. A Declaration of Solvency:This is essentially a balance sheet of the company with the cash and assets at estimated to realise values, and all liabilities.  This is an important document – and it is your document.  It is your swearing of this document that causes the company to go down a solvent, as opposed to an insolvent, liquidation route.  Your accountants can prepare this document, if they have the skills to do so.  It is a public document, it will be filed at Companies House later on, available for any searcher to see.   The signing of the declaration ensures that creditors take no part in the liquidation because they are expected to be paid in full.   In that document you have to swear that you have:- Made a full enquiry into the company’s affairs; and as a consequence
     – Formed the opinion that the company will be able to pay its debts in full, with interest, within less than 12 months from the start of the liquidation.

     There are consequences if that statement is proved wrong.

  3. A Meeting of MembersMVLs are deemed to commence on the date that the members resolve – either in a meeting or through a written resolution – to wind up the company. 14 days’ notice must be given to the members unless the Articles of Association say otherwise.  If 95% (90% if a private company) of the members who can vote agree, in writing, the notice period can be reduced below the 14 days/notice required in the Articles.The meeting must be ‘quorate’ if it is to validly pass the winding up resolution.  What constitutes a quorum will be specified in the company’s Articles of Association.  Normally that it is two members, but it can be one where there is just one member (obviously).

At that meeting, there are two resolutions that have to be passed:

– A  special resolution – needing 75% voting in favour – to put the company into members’ voluntary liquidation
– An ordinary resolution – needing just a simple majority – to appoint a liquidator.

And a few more resolutions may also be necessary depending on the circumstances:

– Special resolutions to enable the liquidator to do anything necessary in a Section 110 reconstruction: to agree that the liquidator can make a distribution in specie (where assets, rather than cash, are distributed to members) and: to change the company name.
– Ordinary resolutions to be considered to set the basis of the liquidator’s remuneration; to agree to joint and several actions where there are joint liquidators.

6. The liquidator’s work then starts…
   1. First off he tells the world about the liquidation and his appointment, and asks for creditors to come forward with their claims, by lodging a variety of documents (including the Declaration of Solvency) with the Registrar of Companies, the London Gazette and by writing direct to creditors, including HMRC.
   2. He realises any remaining assets (it’s best if you do all you can, leave as little work as you can to me, in order to save you money), such as VAT refunds.
   3. ‘Realises’ the cash in the company’s bank account, getting it transferred into a client account set up for the purpose of the liquidation.
   4. Gets the shareholders to sign ‘Lost share indemnity’ if they can’t locate their share certificates – who can? – and ‘a general indemnity’ agreeing to return to the liquidator sufficient money to meet any creditor claim should one arrive after they’ve received a distribution and the liquidator doesn’t have the cash to pay the claim.
   5. Deal with any incoming creditor claims – agree and pay them, including interest. Please note that HMRC insist on being paid interest even if the debt they are owed isn’t actually due to be paid when the company goes into liquidation.  Typically this applies to Corporation Tax.  How to ensure you don’t fall foul of this forms part of the pre-liquidation planning.   Note that the liquidator has quite an unusual and often very useful power that no one else has – and that is of ‘disclaimer’.  Liquidators can force the end of an ‘onerous’ contract on the other party, essentially tear up the contract, with the other party unable to stop him.  Typically, liquidators use the power of disclaimer to bring a long-term property lease or customer contract to an end.  The liquidator then has to agree the party’s unsecured claim in the liquidation.  And if the other party invents a large claim in order to try to maximise what he’s paid, the liquidator has the another useful power – to serve papers on the party telling them what he believes the claim to be, forcing them to go to court if they should disagree. The combination of these powers enables the liquidator to bring a company to an end, having distributed the money in it, where otherwise they wouldn’t be able to because the company had a problematic landlord or customer.
   6. Ensuring the company’s tax affairs are all closed off cleanly, with no comeback. Typically, the liquidator agrees with the company’s accountants what he and they do, and when.  This varies from case to case.
   7. Distribute the company’s money / assets. Distributions can be split across two tax years, some prior to 5 April, some after, in order to save the main shareholders’ some tax and/or maximise the time they can enjoy, and thus reinvest, their money before having to pay their tax.   Again, this is something that should be planned prior to liquidation.TOP TIP – Never, ever put your company into MVL without having agreed the timing and quantum of distributions.  Why?  – because once the company is in liquidation, it’s up to the liquidator what distributions he makes and when.  I am regularly consulted by shareholders of companies liquidated by other IPs who are holding on to the money for an extended time for no apparent reason – and there is nothing you can really do about it.  Typically the liquidators who do this are those who advertise they can carry out a MVL for £1,500 – if you see an IP lowballing like this, you can be sure he needs to make up his money in other ways.
7. The liquidation closes after the liquidator has given the shareholders a final report, presented at a final meeting of members. This report is filed with the Registrar of Companies. 3 months afterwards, the company is struck off.

Things for you to discuss / agree with the liquidator – a checklist

I am providing this as it is clear to me that some directors / shareholders go into MVL blind, with no idea as to either the process (see above) or how best to ensure it achieves what they want to, relying on the recommendation of their accountants, who often lack real experience in this aspect of a company’s life.

1. Who does what, and when? – Prior to cessation of trade, post cessation to date of liquidation, post liquidation – as regards you, your accountants, the IP and others.TOP TIP – Get a Gann chart from the IP
2. Distributions – What is to be distributed, how and when?TOP TIP – Get it in writing
3. Liquidator’s fees – How are they to be set? – time basis ie number of hours per grade by what rate per hour or at a fixed sum? What happens if the liquidator encounters an unexpected problem?TOP TIP – Agree early, on a fixed basis.

If you would like to discus your MVL requirements with me, call 01902 672323.