Members Voluntary Liquidation (MVL) - FAQ's
Why do an MVL and not striking off under the Companies Act As an alternative to formal winding up a procedure exists to apply to the Registrar of Companies for the company simply to be removed from the Register of Companies and dissolved. This procedure is only appropriate for companies that are defunct for all practical purposes. It cannot be used if the company has been active in any way during the previous 3 months.
A copy of the application must be sent to current members, directors, employees, creditors and pension fund trustees. On receipt of the application the Registrar of Companies publishes a notice in the London Gazette and after 3 months if no one has objected, the Registrar may strike the company off.
Unlike the MVL procedure, striking off and dissolution of the company under this procedure does not release the directors of members from any liability accrued.
Also any member or creditor has 20 years following the striking off in which he may restore the company to the register for good reason. With an MVL any application to restore can only be made by the Liquidator or another person sufficiently interested within 2 years from dissolution.
What are the tax benefits of distributing assets to shareholders via an MVL?
An MVL can enable shareholders to extract their investment from a company in a co-ordinated way benefiting where applicable from retirement, taper and other potential tax relief's.
How quickly can assets be distributed?
The liquidator needs to be satisfied that all the liabilities of the company have been settled in full before distributions of capital are made to shareholders. This includes all taxation liabilities and getting confirmation of tax clearance from the Revenue.
To minimise the delay in distributing funds to shareholders, it is a good idea to make full enquiries about all the potential liabilities prior to liquidation and obtain confirmation that they have been settled.
If there are debts including taxation which may take some time to agree, the liquidator can make interim distributions to shareholders but has to make sure sufficient funds are retained to cover the outstanding debts.
Is it possible to set off amounts due to the company against amounts due to shareholders?
Yes, provided all other debts are paid in full, if the shareholders owe amounts to the company rather than settling the debt, the liquidator can issue a Deed of Realisation and Distribution which treats the debtor realisations as capital distributions to shareholders.
What happens if the company cannot pay its debts in full?
If the company becomes insolvent, i.e. it cannot pay its liabilities in full, the liquidator will need to summon a creditors' meeting to convert the Members' Voluntary Liquidation into a
Creditors' Voluntary Liquidation.
The liquidator will also then need to submit a report to the Department of Trade and Industry on the directors' conduct. There are serious implications for directors' who swear a Declaration of Solvency without good grounds for doing so.
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