WHAT IS A MEMBER’S VOLUNTARY LIQUIDATION?

WHAT IS A MEMBER’S VOLUNTARY LIQUIDATION?

In this article we highlight what is a Members Voluntary Liquidation when it can be used and a brief process of the same. If you have any questions on this note or any other insolvency related matter please contact andrew@bradleyhayneslaw.co.uk or call us on 01905 900919.

Members Voluntary Liquidation is a liquidation process which solvent companies use. It is a process through members resolution which allows to bring the company end and eventually dissolve the company.

WHEN CAN A MEMBERS VOLUNTARY LIQUIDATION USED?

Below are some example why companies would consider a Members Voluntary Liquidation

• The company has served its purpose, has come to an end and is no longer required
• The members of the company want to exit from the company and take back what they have invested from the solvent company
• To restructure the assets of the company
• When the company is an old family business, where the owner of the company /parent have retired, and children no longer wish to run that business
• When shareholders who are looking to retire and wish to transfer any cash or assets that they have within their company to their personal estate

Members Voluntary Liquidations are often considered as the distributions at the end of the process may attract Entrepreneurs’ Relief which is more tax efficient than declaring dividends of income and striking off the company at Companies House.

 WHO CARRIES OUT THE MEMBERS VOLUNTARY LIQUIDATION

In a Members Voluntary Liquidation , at a general meeting the Company must appoint a liquidator this has to be licensed insolvency practitioner to deal with winding up affairs of the company and with the distribution of the company’s assets (s.91(1) IA 1986).

ARE THERE ANY ISSUES FOR DIRECTOR PRIOR TO THE APPOINTMENT OF A LIQUIDATOR?

When considering a Members Voluntary Liquidation and before a declaration of insolvency is sworn, directors to investigate what the company and assets are so that they can show the company can meet its liabilities on liquidation of the company for a period that is no longer than 12 months. It is crucial that the declaration of solvency it completed properly, accurately and in full otherwise the directors could face criminal sanctions.

WHAT IS THE PROCEDURE FOR MEMBERS VOLUNTARY LIQUIDATION

Section 84 of the Insolvency Act 1986 states that voluntary liquidation must be commenced by a special resolution – that is approved by 75% of the shareholders.

Statutory Declaration

Members of a company can voluntarily wind the company up with control of the members, providing that majority of the directors of the company have provided a declaration of solvency within five weeks of passing the winding up resolution (s.89(1) & (2) IA 1986).

Prior to a company entering into a Members Voluntary Liquidation, the directors need to have completed a declaration of solvency this should include information about the company’s assets and liabilities that the company has either paid their creditors in full or can pay the debts in full 12 months from the commencement of the liquidation (s.89 (1) & (2) IA 1986).

Procedure for appointment of a liquidator

As soon as the directors of the can show the company is solvent, they must arrange extraordinary general meeting (‘EGM’), unless something else is provided in the company’s articles of association.

To place a solvent company into a Members Voluntary Liquidation a special resolution needs to have passed by the members. The special resolution needs to be filed with the Registrar of Companies and advertised in the London Gazette within 14 days.

The person who certifies the appointment of the insolvency practitioner must deliver to the liquidator the certificate as soon as reasonably practicable (IR 2016, SI 2016/1024, r 5.2).

No later than 15 days from the passing of the winding up resolution, The Declaration of Solvency, must be filed with the Registrar of Companies (s.89(3) of the IA 1986).  The Liquidator is required to keep this certificate on file and must notify all known creditors of his appointment within 28 days (IR 2016, SI 2016/1024, r 5.2 (6)).

HOW WILL THE LIQUIDATOR DISTRIBUTE THE ASSETS?

The Liquidator will collect the assets of the company, pay any creditors that the company may have and then prior to the dissolving the company and whatever is remaining within the company will go to the shareholders of the company.

A signed deed of indemnity will be required by the liquidator from each shareholder who has received anything that was remaining within the company prior to the dissolution of the company.

Company shareholders need to take the appropriate advice prior to considering Members Voluntary Liquidation due to tax rules continually changes and the implication of a Members Voluntary Liquidation.

At Bradley Haynes Law we have teams who have expertise in various fields and can advise on various aspects on the law of Insolvency.  Please feel free to call Andrew Bradley on 01905 900919 or email to andrew@bradleyhayneslaw.co.uk if we can help in any way.