MVL

Introduction Company Voluntary Arrangement Administration Order Members Voluntary Liquidation S425 Scheme of Arrangement Informal Agreement Print option

What is it?
Who can benefit from it?
The Procedure in Brief
Key Components for a Successful MVL
Advantages Of A MVL

What Is Members Voluntary Liquidation?

Although subject to legislation contained within the Insolvency Act 1986, MVL’s relate to the winding up of solvent companies and are utilised as a means of bringing a company to a formal end and distributing its surplus assets. This is undertaken either through payment of a final cash dividend or by what is known as distribution in specie of its assets directly to its shareholders.

Circumstances can be encountered where one company is operating a number of trading activities and there is a requirement to divest these to separate limited companies. This can be done by reorganisation pursuant to Section 110 of the Insolvency Act 1986, whereby new companies are created and certain assets relating to the particular trade transferred to the newly formed companies. In return for the transfer of these assets the shareholders receive a distribution of shares in the new companies usually in accordance with their shareholding in the original company. Prior to implementation of the scheme clearance is obtained for it from the Inland Revenue thus avoiding capital gains tax and other taxation issues.

Who Can Benefit From Members Voluntary Liquidation?

Enables shareholders to extract their investment in a co-ordinated manner benefiting where applicable from retirement, taper and other potential tax relief’s that may be available.

A procedure which can be utilised to split different businesses within one company often allowing the directors to individually concentrate on their areas of strength whilst also enabling opportunity for growth and development but at the same time minimising the level of risk and exposure that may otherwise have been placed on the original company.

The Procedure In Brief

Requires the preparation of a formal Declaration of Solvency which must be produced at a date within 5 weeks of the resolution to wind up. The Declaration of Solvency details the company’s assets and liabilities as evidence of its solvency and ability to repay creditors together with statutory interest within a maximum of 12 months.

A board meeting of directors is held during which the Declaration of Solvency is produced in support of the solvency of the company. At this meeting a resolution of the board is taken whereby it is recommended that an extraordinary meeting of shareholders is convened with a view to placing the company into liquidation and for the appointment of a nominated liquidator.

A chairperson being one of the directors is nominated at the board meeting whose role is to sign the relevant notices convening an Extraordinary General Meeting (“EGM”). It is also the chairperson’s role to chair the EGM.

A 21 day notice period to shareholders of the EGM is required, although this can be shortened by consent of 95% of the shareholders in value.

At the EGM, the following resolutions are passed:-

Special Resolutions

“That the company be wound up voluntarily, and that [name and address of Licensed Insolvency Practitioner] be and is hereby appointed Liquidator for the purposes of winding up the company”.

Extra Ordinary Resolutions

“That the Liquidator be authorised under the provisions of Section 165(2)9a) of the Insolvency Act 1986 (“The Act”) to exercise the powers specified in Part 1 of Schedule 4 of The Act, namely to pay all creditors in full and to make compromises with creditors and debtors.”

“That the Liquidator be authorised to divide all or such part of the surplus assets of the company as he shall think fit in specie or kind amongst the members of the company.”

“That the Liquidator be authorised to execute the S110 Agreement dated [Date of Agreement].

Following the appointment of the liquidator it is his role to settle any remaining outstanding creditors there may be before making a distribution to shareholders. These distributions can take the form of distribution of cash, assets as indicated above or in the case of S110 schemes, shares.

Upon completion of his duties prior to calling a final meeting of shareholders to report on the conduct of the liquidation, clearance is obtained for the government departments that they have no objection to him obtaining his release as Liquidator.

The company is struck off the register at Companies House, some 3 months after the holding of the final meeting.

Key Components for a Successful MVL

The directors must be absolutely certain of the solvency of the company taking into account both prospective and contingent liabilities. Ultimately if it is established that the company is in fact insolvent, then the liquidation will be converted to an insolvent Creditors Voluntary Liquidation, (see Insolvency section of this website), and the directors may by virtue of having sworn a Declaration of Solvency become liable to imprisonment, a fine or both.

Advantages of a MVL

Formally ends the life of the company, leaving no outstanding matters.

Provides a potential tax efficient exit route to shareholders.

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