What is the Members’ Voluntary Liquidation process?

A Members’ Voluntary Liquidation enables the directors or shareholders of a solvent limited company to close it down and extract the profits. As long as 75% of the shareholders agree, you can appoint an Insolvency Practitioner to liquidate the company on your behalf.

They will identify, value and sell the company’s assets and use the proceeds to pay any outstanding liabilities. They then distribute the remaining money among the shareholders.

All distributions are taxed as capital rather than income, and the shareholders may also be able to claim Business Asset Disposal Relief, which reduces the effective tax rate to just 10%.

You must pay the liquidator a fee for their work. However, the low tax on disbursements typically makes a Members’ Voluntary Liquidation a more cost-effective closure method than Strike Off where high-value assets are involved.

There are several steps in an MVL. Although the process is straightforward, you should know what’s involved and what your role will be.

Contact an Insolvency Practitioner (IP)

As it’s a formal procedure, you will need the help of an Insolvency Practitioner. Initially, they will assess the company and advise you on whether a Members’ Voluntary Liquidation is the right approach. They can then act to liquidate the company on your behalf.

Sign a Declaration of Solvency

Members’ Voluntary Liquidation is only suitable for companies that can repay all their debts within 12 months of the start of the liquidation process. If you cannot pay your debts in full, you must enter a Creditors’ Voluntary Liquidation (CVL) instead. If you have one or two directors, they must all sign the declaration. If there are more than two, it must be signed by the majority.

Pass a resolution to wind up 

The directors must call a shareholders’ meeting within five weeks of signing the Declaration of Solvency. If 75% of the company’s shareholders vote in favour of liquidation, a resolution to wind up the company will be passed and the process can begin.   

Advertise the company’s closure

Within 14 days of passing the resolution, an advert must be placed in the Edinburgh Gazette to inform all parties of the company’s intended closure. The liquidator must also notify the creditors within 28 days of their appointment.  

Liquidate the company

Once all the necessary notices have been given, the liquidator can take control of the company and the directors’ powers will cease. The liquidator will resolve any contractual issues, identify and sell off company assets, repay the company’s creditors and pay the remaining funds to the shareholders.  

Remove the company from the official register

Once the liquidator has held a final meeting and filed the relevant documents with Companies House, they will place another notice in the Gazette. The company will then be removed from the Register of Companies and cease to exist.

In simple cases with relatively few assets and no outstanding liabilities, you can close a company via a Members’ Voluntary Liquidation in three to six months. More complex liquidations involving larger companies and more assets typically take six months to a year.

Shareholders don’t always have to wait that long to receive their funds. Liquidators will often make distributions while the company is still in liquidation. They’ll usually hold back a small sum to cover their fee and any other costs that may arise. They then pay the remaining funds to the shareholders when the company has been liquidated.

There are some steps you can take to speed up the liquidation process. Before entering an MVL, you should collect all the money you’re owed, bring your tax obligations and accounts up to date, deregister from VAT and close the payroll scheme. It’s also advisable to repay all your creditors before the process begins, as unpaid creditor claims accrue statutory interest of 8% once the company enters liquidation.

Please contact our team to discuss whether Members’ Voluntary Liquidation is the best option for your business and find out more about the process or timeliness. We can arrange a free same-day consultation or a meeting at one of our offices in Scotland.