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Understanding Members’ Voluntary Liquidation (MVL)

A Members’ Voluntary Liquidation is a formal liquidation process which brings about the end of a solvent limited company which has reached the end of its useful life. There are a number of reasons why you may wish to close a solvent company, such as retirement, relocation, or simply a desire to extract your hard-earned profit from the business and move on.

There are a two main ways you can close a solvent company in Scotland; either via the Members’ Voluntary Liquidation process, or applying to have the company struck off (also known as dissolved) at Companies House.

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Criteria for Members’ Voluntary Liquidation

An MVL is designed for solvent companies only and prior to entering this process, the solvency of the business must first be established and then sworn to. This is done by the directors signing a Declaration of Solvency which attests to the fact that the company is able to fully repay any outstanding liabilities (along with statutory interest) within 12 months of the commencement of the liquidation.

How the MVL process works

  1. Directors decide to close the company and appoint a liquidator – Once it has been decided that the solvent company is to be liquidated, shareholders must identify a suitable licensed insolvency practitioner that they wish to appoint before calling a General Meeting of shareholders to pass the required resolutions to start the liquidation process. Once appointed, the insolvency practitioner will assume control over the company’s affairs.
  1. Sign a Declaration of Solvency – An MVL cannot be entered into without a Declaration of Solvency first being sworn by a majority of the company’s directors. This must then be filed with Companies House along with a Statement of Affairs which details the company’s financial position and sets out its assets and liabilities.
  1. Liquidation advertised and creditors informed – All known creditors will be informed about the proposed liquidation, and an advertisement will be placed in the Gazette to notify any other interested party who may wish to object or submit a claim as a creditor.
  1. Assets identified and liquidated – As part of the liquidation process, all company funds and assets will be identified before being liquidated (sold). Proceeds will be used to repay any creditors (if applicable), with the remainder left to be distributed to shareholders. It may be the case that an asset is to be distributed ‘in specie’. This means distributing the asset in its current form rather than liquidating it and distributing the funds raised. An example of this could be property, a vehicle, or any other tangible asset.
  1. Distribution to shareholders – Once HMRC clearance has been obtained, funds can then be distributed to shareholders. It may be the case that an indemnity has been signed which has already allowed a proportion of the funds to be released to shareholders prior to this stage. If this has been done, then any funds which have been held back to cover any unforeseen circumstances will be distributed at this point.
  1. Liquidation concludes and company is closed – The final stage in closing the company is for the liquidator to submit their final account which explains all the actions taken by the liquidator during the MVL. Following a period of three months, the company will be dissolved and its name removed from the register held at Companies House. At this stage, the company will no longer exist as a legal entity.

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There are three main ways to close a company in Scotland. Taking our 60 Second Test will help our advisers identify the correct route forward for you and your company.

While all three closure options have their advantages and disadvantages, the right one for you will depend on a number of factors including the current financial position of the company and your plans for the future.


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