Members Voluntary Liquidation (MVL)
An MVL is a solvent liquidation used to either end the life of a company or as part of a reorganisation of the corporate structure. All creditors of the business are paid in full.
The MVL process is an alternative to applying for a company to be struck of the registrar of companies. However the MVL process provides protection to the shareholders in the event that an unexpected liability arises once the affairs have been dealt with. It can also be used in circumstances where a strike off from the registry is not possible.
The MVL process can also provide tax benefits to shareholders since any distribution of residual funds and assets are treated as a return of capital rather than an income distribution.
MVLs follow a similar process to a Creditors Voluntary Liquidation (CVL), however it is the members (shareholders) of the company that drive the process rather than the creditors.
A meeting of the members is convened in order to place the company into liquidation. Prior to the meeting a Declaration of Solvency is prepared and sworn by the directors. This declaration states the assets and liabilities of the company and that the business will be able to pay all of its debts and expenses (including liquidation costs) within 12 months.
The meeting of members is then held an resolutions passed to place the company into liquidation and to appoint an Insolvency Practitioner as liquidator.
The liquidation is advertised and creditors invited to provide details of amounts owed to them. The liquidator disposes of any assets of the business to meet the liabilities.
In the event that it appears that the company will not be able to pay its liabilities within 12 months of the liquidation the company is deemed insolvent and is placed into CVL. In this event there are significant repercussions to the directors that swore the Declaration of Solvency.
Money (or assets) can be distributed to creditors, usually after creditors have been paid. Sometimes if shareholders sign an indemnity a distribution can be made prior to all claims of creditors being settled.
Once all of the affairs have been finalised the company will cease to exist and be struck off the companies register.
