When a company reaches the end of its natural life, perhaps due to the retirement of its directors, the end of a specific project, or a group reorganisation then a solvent liquidation, known as a Members’ Voluntary Liquidation or MVL could be appropriate. In certain circumstances an MVL can prove very tax advantageous when there are surplus assets available to be distributed to shareholders.
The process is instigated by the company directors’ who must make a statutory declaration of solvency (to distinguish it from being insolvent). A meeting of members (shareholders) is then held to resolve that the company be wound up and appoint a liquidator.
The liquidator, who must be a licensed insolvency practitioner, will realise the company’s asset, settle the claims of any creditors and finalise the company’s tax position. Any funds (or assets which can be distributed ‘in specie’) that remain after settling creditor claims can then be distributed to the company shareholders.
The distribution made by the liquidator is a capital distribution and in the hands of the shareholder is subject to capital gains tax rules and reliefs. In addition, in certain instances the distribution will also attract business asset disposal relief. It is recommended that shareholders take independent tax advice to clarify whether these reliefs are available.
If you would like to find out more about a Members’ Voluntary Liquidation then please contact us for a no obligation discussion to find out how our services could help you.
Resolutions are passed in order to place the company into liquidation and appoint a liquidator.
In certain circumstances resolutions can be passed in writing without a meeting being held.
This important document differentiates a members’ voluntary liquidation from an insolvent liquidation. It requires the directors (or a majority of them) to make a statutory declaration that they have made a full enquiry into the company’s affairs and have formed the opinion that the company will be able to pay its debts in full together with statutory interest within a specified period not exceeding 12 months from the commencement of the liquidation.
The declaration incorporates an up to date statement of the company’s assets and liabilities. It must be made before the members pass the resolutions to wind up.
The liquidation commences when the resolutions to wind the company up and appoint the liquidator are passed.
All powers of the directors cease other than those sanctioned by the members or the liquidator.
The liquidator must be a licensed insolvency practitioner. The liquidator has a wide range of powers to enable realisation of the company’s assets, to agree claims of creditors and to make distributions to creditors and members. The liquidator is able to operate bank accounts in the name of the company and to invest funds.
The liquidator will advertise for creditors to make claims against the company and will write to known creditors to invite them to make a claim. At least 21 days’ notice must be given to creditors.
The liquidator must pay interest on all creditors’ claims calculated from the later of the commencement of the liquidation or the date the debt was due up to the date payment is made.
The rate of interest used is the higher of the judgement debt rate (currently 8%) or the rate previously agreed by the company.
Usually, the liquidator is able to pay creditors’ claims at the start of the liquidation so interest is not payable. It is obviously better for creditors to have been paid prior to liquidation.
The liquidator is required to agree and pay the claims of creditors before a distribution is declared to members. It is a statutory requirement that creditors are given an adequate period in which to formulate and submit their claims. However, it is likely that HMRC will be unable to submit their claim promptly.
Should you wish to receive a distribution as soon as possible, the liquidator will request that you sign a form of indemnity. Assuming that the liquidator receives the forms of indemnity from all the members, the liquidator shall then be in a position to declare an ‘advance distribution’. It is essential that all the members sign indemnities, as in the event that one or more members does not agree to sign the indemnity, then it will not be possible to declare a distribution until the claims of all creditors have been paid in full, together with statutory interest.
As soon as the liquidator is ready to conclude the liquidation, you will receive a proposed final account showing all the receipts and payments made.
The company will be dissolved three months after Companies House has filed the liquidator’s final account.
An application can be made to the Court within six years of the dissolution for a declaration that the dissolution of the company be void.
