Members voluntary liquidation

What is voluntary winding up? How does voluntary liquidation work? To pass a resolution for members ’ voluntary liquidation , you must: make a ‘Declaration of solvency’ – English and Welsh companies ask the Accountant in Bankruptcy for form 4. The company’s Directors or Shareholders may wish to retire, move overseas or alternatively they are an IRcompany. Theeffect in either case is that a liquidator is appointed to bring the company’sexistence to an end so that it can be dissolved.

Where the decision to go intoliquidation is taken voluntarily and the company is insolvent and cannot payall its creditors in full, the liquidation is termed a ‘creditors’ voluntaryliquidation’.

If the company is solvent and can pay all its creditors in full,the liquidation may be a ‘members’ voluntary liquidation’. See full list on mw-w. The catalyst for a members’ voluntary liquidation is adecision by the directors that the company has no further purpose and thatavailable assets should be realised and distributed to shareholders. Thedecision may be prompted by tax planning considerations within groups ofcompanies or as part of group or company reorganisations or reconstruction’s. In certain types of reorganisation, the whole or part of the business of thecompany to be liquidated is sold to another company in exchange for shares orother securities in the purchasing company.

In rarer situations a company’sarticles may provide for it to exist for a fixed period only or until aspecified event occurs. An essential requirement for a members’ voluntaryliquidation is that the directors (or a majority of them) must make a statutorydeclaration that they have made a full inquiry into the company’s affairs andhave formed the opinion that the company will be able to pay its debts in full,together with statutory interest, within a specified perio not exceeding 12months, from the commencement of the liquidation. The declaration,incorporating a statement of the company’s assets and liabilities at the latestpracticable date, is made before a solicitor or commissioner of oaths.

Thedeclaration must be made not more than five weeks before the liquidation and tobe effective must also be filed with the Registrar of Companies within daysof the commencement of the liquidation. A director making a declaration has to have reasonablegrounds for the opinion that the company will be able to pay its debts in full,together with statutory interest, in the period specified. If a declaration ismade but.

A resolution for winding up must be passed by the company’smembers and for a members’ voluntary liquidation a special resolution isusually required. Such a resolution can be passed in a general meeting and 21days’ notice of the meeting is normally required. Shorter notice can be agreedupon by a majority in number of the members having the right to attend and voteand holding not less that in respect of public companies, or in respectof private companies, of the nominal value of the shares giving that right. A special resolution proposed in general meeting can only bepassed if three quarters of the members entitled to vote and voting in personor by proxy vote in favour if it, subject to any poll based on shares heldwhich may be provided for in the company’s articles.

A voluntary liquidation commences at the time of the passingof the resolution and from that time the company exists only for the purposesof winding up even though its corporate state and corporate powers continueuntil it is dissolved. The company can carry on its business only in so far asis necessary to benefit the liquidation. In practice a liquidator mightcontinue the business for a short period either in a limited way for thebeneficial disposal of assets, or to facilitate the sale of the company’sundertaking as a going concern. A consequence of the liquidation is that the powers of thedirectors cease other than as sanctioned by the members or the liquidator. Further, transfers of the company’s shares require the sanction of theliquidator to be valid and the status of the members of the company cannot bealtered.

The liquidator must be an authorised insolvency practitionerand upon appointment gives notice in the Gazette and to the Registrar ofCompanies. Notice of the appointment must also be sent to creditors within 28days. The liquidator may be removed from office by a general meeting convenedfor the purpose or by the Court and any type of vacancy in the office ofliquidator may be filled by the company in a general meeting.

If the vacancy isnot filled in that way the Court may appoint. The liquidator has a wide range of powers to enablerealisation of the company’s assets, agreement of creditors’ claims anddistributions to creditors and members.

Certain powers (e.g., compromisingcreditors’ claims) may be exercised only with the sanction of the members. Theliquidator is able to operate bank accounts in the name of the company and toinvest funds, subject to paying funds not required for the immediate purposesof the liquidation into an account held by the Secretary of State for Trade andIndustr. The rules under which claims are dealt with in a members’voluntary liquidation are the same as in other forms of liquidation and claimsmay be made in any form. A secured creditor may either realise its security andprove for any balance due or may surrender the security and prove for the wholedebt (any surplus realised by a secured creditor is payable to the liquidator). Mutual dealings between a creditor and the company prior to liquidation must beset off.

Debts in foreign currency must be converted to sterling. Interest can only be included in the debt if a legal right to such interest hasbeen established prior to liquidation, and then only up to the date ofliquidation. In the event of a dispute regarding a claim, the liquidatormay reject all or part of a creditor’s proof, but the creditor then has daysin which to refer the matter to the Court. The liquidator will invite all known creditors to make theirclaims, usually with the notice of appointment.

Notice of any intended dividendwill be given to listed creditors who have not made their claims, specifyingthe latest date by which claims should be made. The liquidator still has thediscretion to admit late claims, but only to the extent that other funds remainavailable. In order to distribute funds safely regardless of potentialclaims of which the liquidator is not aware, an advertisement of the intentionto make any distribution may be placed in the newspaper the liquidatorconsiders most appropriate for drawing it to the creditors’ attention. Any suchadvertisement must specify a last date for proving debts not less than days fromthat of the notice.

The liquidator must pay interest on all creditors’ claimscalculated from the later of the commencement of the liquidation or the datethe debt was due, up to the date payment is made. The rate of interest used isthe higher of the judgement debt rate (currently ) or the rate previouslyagreed by the company. If, in the course of a members’ voluntary liquidation, theliquidator is of the opinion that the company will be unable to pay its debtsin full (together with statutory interest) within the period stated in thedeclaration of solvency, he must call a meeting of creditors to take place notlater than days after the day on which he formed the opinion. The liquidatormust give seven days’ notice in writing and advertise it in the Gazette and tworelevant newspapers.

In these circumstances, as from the day of the creditors’meeting the liquidation becomes a creditors’ voluntary liquidation. As far as remaining in office is concerne the liquidator’sprofessional ethical guidelines may require him to offer his resignation andrefuse re-appointment, where he or his firm had previously acted for thecompany, e. Flowchart 1: Liquidator in a members’ voluntary winding up. Preparing for a members’ voluntary liquidation These issues should be attended to when considering placing a company into MVL: Ensure that the company is solvent. The directors are required to sign a declaration of solvency (DoS) confirming that the company will be able to pay all debts in full within months of lodging the DoS. Please also see Leaflet No.

A company can be put into liquidation voluntarily, at the instigation of its directors, or compulsorily,. A members ‘ voluntary liquidation can be commenced if the directors of the company are able to swear a statutory declaration of solvency and of the company’s members have agreed to place the company into liquidation. A liquidation procedure for solvent companies. An MVL is often used as part of a group or company reorganisation or restructuring.

Initial payments from MVLs are quick and the vast majority of the funds due to shareholders can be immediately distributed. A members voluntary liquidation (“MVL”) is a formal process of finalising the affairs of a solvent company, distributing any surplus assets to members before it is formally deregistered. Advisors should consider the benefits of a MVL as an option for their clients.

The mechanics of commencing the MVL process are relatively straight forward. Directors choose this liquidation option as it includes healthy tax benefits for the shareholder funds during distribution. The costs associated with maintaining company structures that are no longer required are easy to overlook.

Corporate restructures allow rationalisation of a group structure and dissolution of any unnecessary and potentially costly companies within a group. Members’ voluntary liquidations.