What is Members Voluntary Liquidation, and when can it be used?

A Member’s Voluntary Liquidation is a procedure that can only be used when a company is solvent.

It is the members, i.e. the company shareholders, that control the liquidation process, and it is this that brings about the name ‘Members Voluntary Liquidation’.

The directors of a company instruct an Insolvency Practitioner to formally wind up its affairs. Trade ceases, assets are realised and the liabilities quantified and paid with any surplus remaining thereafter distributed to shareholders.

The company’s assets should be sufficient to pay all debts in full, interest on those debts and the cost associated with the liquidation. The whole process should be concluded within a period of twelve months.

With careful tax planning, the cost of the liquidation should easily be covered by tax savings gained by shareholders.

There are many reasons why directors may wish to place a company into Members Voluntary Liquidation. Such may include the loss of a major contract and a realisation that it will not be replaced, the retirement of the sole director and shareholder, a disagreement between the directors and shareholders, or completion of a project for which the company was set up.

The directors will need to swear a ‘declaration of solvency’ which confirms that the company is solvent.

A major benefit of Members Voluntary Liquidation is that creditors who do not prove their debt in the liquidation are unable to claim against the company once certain statutory procedures have been completed. Shareholders can therefore rest assured that no further claims will creep out of the woodwork once the liquidation is completed and the company dissolved.

Should a simple dissolution of the company be sort, an aggrieved person could apply to have the company restored within a period of 20 years from dissolution. A Members Voluntary Liquidation negates this problem.

Professional advice should always be sought so that the financial position of the company can be clarified and tax planning issues considered.

Harrisons can provide guidance and a professional insight to directors and shareholders should they wish to wind up a solvent company’s affairs. We can also assist in placing the company into liquidation and act as liquidators.

You may be interested in…