Definition – Members' Voluntary Liquidation (MVL) is where the shareholders of a solvent company adopt a voluntary winding up resolution and appoint a liquidator to realise the assets of the business in order to distribute the proceeds to company members. A company is considered legally solvent when it is able to meet its financial obligations and the value of its assets (i.e. - equipment, inventory, contracts, invoices, bank account funds, property etc.) exceeds the total sum of all its debts and liabilities.
To enter into an MVL the shareholders of a company must make a sworn Declaration of Solvency, which states that they have thoroughly reviewed the company's balance sheet and finances and have concluded that it is solvent and able to reasonably repay all existing and prospective debts within a period of no more than 12 months.
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After reading the above definition you may still be wondering, “ what is members' liquidation in regard to the future of my company or career?” The procedure will mean the end of the company, however you will be able to extract the value of the business in the form of cash, and instead of being charged Income Tax on the funds you'll be charged a Capital Gains tax, which means you're saving money on taxes in comparison to extracting the value of the business in the form of dividends divvied up amongst shareholders, which would be charged as Income with higher taxes.
Although the voluntary winding up petition must be advertised in the Gazette, making it a matter of public record, an MVL is not considered an insolvency procedure so it should not negatively affect your business reputation in the same way a creditors' voluntary liquidation (CVL) would.
A CVL takes place when an insolvent company enters into voluntary liquidation, so it is the opposite of members voluntary (solvent) liquidation. In both scenarios the directors/shareholders of the company resolve to close the company, except in a CVL the proceeds of the liquidation go to creditors, whereas in an MVL the proceeds go to the company's members.
During an MVL the liquidator must ensure that the company is indeed solvent throughout the procedure. Sometimes additional creditors may come forward after the MVL is advertise and submit claims against the company, or the valuation of contingent liabilities reveals that prospective debts will push the company into insolvency. Regardless of the cause, if a company becomes insolvent or is found to be insolvent by the liquidator then a creditors' meeting will be held and the procedure will be converted into a CVL.
If the creditors of a company swear to a false Declaration of Solvency to enter into an MVL then they may face fines and penalties, including the possibility of being banned from acting as the director of a UK limited company for up to 15 years, and even imprisonment in cases where intentional fraud is indicated.
You may also be wondering how to put a solvent company into liquidation – Simply consult a licensed insolvency practitioner who will assist into place the company into MVL.
If you have any questions about voluntary liquidation or any other matter related to the voluntary winding up or rescue of a company please feel free to send us your questions. We also have licensed insolvency practitioners on hand ready to provide free phone consultations on 0800 644 6080.
Wednesday 18th May, 2016 Written by Keith Tully
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