What is members’ voluntary liquidation?
Members’ voluntary liquidation (MVL) is the formal process of voluntarily closing a company that is solvent, in other words, the company is able to pay its remaining debts.
There are a variety of different ways you can close your business, based on your financial situation, and your business structure. Read more about the different methods of closing a limited company.
If a business is solvent, it is quicker and easier to close the company than if the company is insolvent and unable to pay its debts. Members’ voluntary liquidation is decided by the company’s directors and there are some steps to follow which we will outline below.
Eligibility for members’ voluntary liquidation
The MVL process can only be used by financially stable businesses, in which the directors voluntarily choose to wind-up the business. The business must be:
- able to pay its taxes
- able to pay its creditors
- able to meet any remaining contractual obligations
You can decide to voluntarily liquidate your company if one of the following applies:
- you don’t want to run the company anymore
- you are retiring
- you wish to resign from your role in the family business and there is nobody else to take over
If any of these criteria do not apply to your business, there are other ways you can liquidate your company.
The members’ voluntary liquidation process
Since MVL is a formal process of bringing a company to a close, there is a strict process that businesses need to follow.
Write a declaration of solvency
The first step of members’ voluntary liquidation is creating a declaration of solvency if your business is based in England or Wales. If your business is in Scotland, you will need to complete the 4.25 (Scot) form.
A declaration of solvency states the name and address of the business, the full names and addresses of each director, and the amount of time it will take for the business to pay off any remaining debts. This cannot be longer than 12 months from the date of liquidation.
Sign the declaration with a witness
Once the declaration of solvency has been created, this needs to be signed in front of a solicitor or notary. If there is more than one director in the company, then all, or the majority of directors will need to sign it.
Call a meeting with shareholders
The next step involves calling a meeting with all of the shareholders in the company to vote on the liquidation. This must be done within 5 weeks from when the declaration of solvency was signed. The vote must pass by at least 75% in favour of liquidating the business.
Find an insolvency practitioner
Now that the liquidation has been agreed upon by the majority of directors and shareholders, it is time to start the liquidation process. During the shareholder’s meeting, you will need to appoint an insolvency practitioner who will act as a liquidator.
The insolvency practitioner (IP) will assist with selling assets, paying off debts, and distributing any remaining funds among shareholders.
Advertise the closure in your local Gazette
While the insolvency practitioner handles the winding-down process, you will also need to advertise the liquidation in your local Gazette. There will be a small fee involved, depending on the format you choose.
Submit paperwork to Companies House
Within 15 days of the resolution with shareholders, you will need to submit your signed declaration of solvency and the additional financial statements to Companies House. For Scottish companies, you will need to submit form 4.25 (Scot) to the Accountant in Bankruptcy.
What is the difference between MVL and dissolution?
Dissolution is the quickest, simplest, and cheapest way to close a limited company. It requires fewer steps than members’ voluntary liquidation. However, with the dissolution process, your business must not have traded in the last 3 months, cannot be in or threatened with liquidation, and the business must not have agreements with creditors.
Therefore, if your business has any debts that need to be paid or is still trading, you will need to go down the route of members’ voluntary liquidation.
What is the difference between MVL and CVL?
Creditors’ voluntary liquidation (CVL) and members’ voluntary liquidation (MVL) are very similar processes of closing a company. However, the main difference is that MVL is the process used for solvent companies, whereas CVL is the process used for insolvent companies who are unable to pay their debts.
Both processes are voluntary and follow similar steps. However the reasoning behind closing the company through CVL is usually due to financial stress. Another difference is with CVL, it is unlikely that creditors will be fully repaid, whereas with MVL, it is certain that they will be fully repaid.