Members Voluntary Liquidation Procedure
Our team has put together the infographic below, which details the 4 key elements of a Members Voluntary Liquidation – also known as a solvent liquidation. They are: 1. Key initial matters for consideration; 2. The process of placing the company in liquidation; 3. What happens once the company is in liquidation; 4. The closure of the liquidation.
Please take a look at some of our testimonials from our clients for just some of the successful members voluntary testimonials we have completed. Also click here for news of the use of Entrepreneurs’ Relief in MVLs.
In More Detail, the key matters for consideration by the Directors with a Members Voluntary Liquidation are:
Declaration of Solvency
For the Company to be placed into members voluntary liquidation, all or a majority of the directors must make a statutory Declaration called a Declaration of Solvency. The Declaration of Solvency must be made no earlier than five weeks before the winding-up resolution for that Company is passed. A solicitor or commissioner of oaths who is independent of the Company and its shareholders must witness the making of the Declaration of Solvency.
It may be convenient for the Board to be reduced to facilitate the Swearing of the Declaration of Solvency.
The Declaration states that the Directors have made full enquiry into that Company’s affairs and that, having done so, they have formed the opinion that the Company will be able to pay its debts in full, together with interest at the official rate (presently 8% per annum) within a maximum of twelve months from the date of liquidation.
Appended to the Declaration of Solvency is a statement of that Company’s assets and liabilities, including any contingent and prospective liabilities referred to below. The responsibility to ensure that all such liabilities are included on the Declaration of Solvency, and therefore ultimately settled in full, falls on the Directors of the Company.
Please note that any Director making a Declaration of Solvency without having reasonable grounds for the opinion that a Company will be able to pay its debts in full, together with interest at the official rate, within the period specified in the Declaration is liable to imprisonment or a fine, or both.
It is important that a pre-liquidation review of the affairs of the Company is carried out. This is principally because of the requirements of the Declaration of Solvency referred to above and partly because any matters which emerge part way through the liquidation will inevitably delay its conclusion.
In addition, once appointed the liquidator is responsible for dealing with the Company’s affairs, and not the Directors, and should therefore be made aware of all current or other issues. Potentially this may be costly and it could undoubtedly prove more expensive than if such matters had been resolved prior to liquidation.
Any additional assets or liabilities identified should be added to the figures shown on the Declaration of Solvency.
Creditors’ claims and Contingent creditor claims
Prior to making any distribution to shareholders a liquidator has a statutory duty to make enquiries relating to creditor claims and potential claims. A notice inviting claims is placed in The London Gazette, which satisfies such duties.
If any contracts remain which have existing or contingent liabilities attached to them, such as guarantees, warranties etc, consideration should be given as to how the contracts should be dealt with.
Placing the Company into liquidation
Briefly, the procedure for placing the Company into members’ voluntary liquidation is as follows: –
A meeting of the Board of Directors is convened where the Declaration of Solvency is made by all or a majority of the Directors of the Company. The Declaration must be filed with the Registrar of Companies no later than 15 days after the winding-up Resolution is passed.
The Directors convene a General Meeting at which the shareholders pass a Special Resolution to place the Company into liquidation and appoint the liquidators.
In normal circumstances 14 days’ notice (excluding the date of postage and the date of the proposed meeting) must be given to shareholders of the meetings to place the Company into liquidation. However, the meeting may be held at short notice if 90% of the shareholders, in value of shares, so consent.
Once the Company is in liquidation
Following the General Meeting, the Company is in liquidation and a liquidator has been appointed. At this stage all of the powers of the Directors cease and the liquidators’ will deal with all other winding-up issues.
Briefly, the procedures are as follows:
- Filing the Winding-Up Resolution, Declaration of Solvency (if not already filed) and notice of appointment with the Registrar of Companies;
- Advertising the liquidation and advertising for creditors’ claims. These adverts are placed in the London Gazette;
- Obtaining the statutory insurance bond in respect of the Company’s assets;
- Advising all known or potential creditors of the liquidation, requesting final accounts or claims against the Company. Such claims must then be agreed and settled out of the assets of the Company.
- Finalising the tax position of the Company with the HM Revenue & Customs and obtaining their clearance to close the liquidation. It will be necessary to prepare tax returns to the date of liquidation for submission to HMRC. The assistance of your accountants will be required to prepare the necessary returns.
- Distributing the assets of the Company to shareholders; note non-cash assets can be distributed in specie.
- In addition there are other statutory and accounting obligations, depending on the particular circumstances of the Company and the length of duration of the liquidation.
Closure of the members voluntary liquidation
Once the above procedures are completed and all the assets have been realised and distributed, the liquidator will prepare a final report on the conduct of the Liquidation. Shareholders have 8 weeks to challenge the final report but can waive this requirement to enable the Liquidation to end sooner.
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