Members Voluntary Liquidation

What is MVL?

A MVL or Members’ Voluntary Liquidation is a cost-effective process for shutting down a solvent company. When Shareholders are keen to extract the profits of their investments in a profitable company that has come to the end of its useful life, or if the directors are looking to leave their business for any reason a MVL is often utilised.

Is a MVL right for my business?

MVLs are an ideal process for solvent companies to end their affairs, however they are not suitable for every business. If a company has little profit it may be best to dissolve the company rather than go through a MVL. If the business has over £25,000 in retained profits, then a MVL will usually be the most suitable process to extract any proceeds.

For a company to qualify for a MVL they must be solvent and able to deal with any liabilities within a 12-month period. If a company is insolvent alternative processes such as Administration or a CVL (creditors’ voluntary liquidation) should be considered.

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Dissolving a Company vs a MVL?

Dissolving or ‘striking off’ a company is quite a straightforward process where a DS01 form is submitted to Companies House along with a (at present) £10 fee. The intention to dissolve the company is then advertised in the Gazette and if no objection is received the company is struck off after 2 months.

If your company owes money to HMRC and/or creditors you are unable to pay, it is likely you will have an objection filed against the dissolution and the application will be suspended. Should this happen it might be best to consider alternative closure methods (CVL or Administration).

It is important to note that once a company is dissolved any assets left in the business are automatically transferred to the ownership of the Crown. These can be claimed back after paying a reverse strike off fee. As such it is recommended that all assets are extracted from the business before the strike off process begins.

MVLs involve a licensed Insolvency Practitioner (IP) and as such are more expensive than dissolving a company. If there is a large amount of money that needs to be distributed it is absolutely vital that it is handled correctly, especially if the company’s affairs are complicated. A knowledgeable IP will ensure the business is closed down in the most cost-efficient manner possible.

What is the timeline for shareholders payments?

In the majority of cases where there are no complications or outstanding liabilities the company will be closed and shareholders will receive their funds normally within 6 months. It is also common for a distribution to be made to the shareholders before this time, although this is dependent on the level of funds involved.

How can I prepare for entry into a MVL?

When entering a MVL there are a few steps you can take to prepare for the process in order to avoid future complications and more importantly reduce the potential cost of the process. These are:
Confirm all liabilities are paid and your debtor book is chased and collected
Make sure that any HMRC obligations are up to date.
Deregister for VAT and as an employee after you have ceased trading.

Unpaid creditor claims including money owed to HMRC accrue statutory interest at 8% once the company is in liquidation, so it is important that these are taken care of before entering into a MVL. If you are considering entry into a MVL it is advised that you contact an Insolvency professional as soon as possible as MVLs can be planned with an IP and accountant before actioning the process. This helps ensure that the company is in the best position for the MVL to be completed as quickly and efficiently as possible