Members Voluntary Liquidation (MVL) - Process
Declaration of Solvency
If the directors of the company are confident that the company is solvent, they prepare and swear a Declaration of Solvency. In reality the directors will appoint an Insolvency Practitioner to assist. The Declaration of Solvency includes a statement of the company's assets and liabilities and demonstrates that the company is solvent. The statement must be made up to a date within 5 weeks of the date on which the shareholders resolve to wind up the company.
Shareholders' Resolutions
The shareholders resolve to wind up the company and appoint a Liquidator. There is no need for a creditors' meeting as the directors have “sworn” that the company can pay its debts in full.
The shareholders could be asked to give an Indemnity to cover the possibility that they have not disclosed all of the company's liabilities. The liquidator pays dividends to shareholders from the surplus funds after covering the outstanding liabilities. It is always advisable for most of the company's liabilities to be ascertained and settled before the company proceeds into Liquidation as statutory interest has to be paid on all outstanding liabilities once the company is in liquidation.
Distributions to Shareholders
Once all the liabilities plus statutory interest have been agreed and paid, surplus funds are distributed to shareholders. If there is property within the company, this can be transferred to shareholders rather than realised, a “distribution in specie”. The tax implications of distributions to shareholders need to be carefully considered to minimise any potential liability.
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 to do so.
The Next Step
The options for a financially distressed business need to be very carefully considered. Simply forward your details on our Contact Form and we will contact you. Alternatively ring us on our FREE ADVICE LINE 0800 781 0990.
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