Updated: 2nd January 2021
When a company in good financial standing wants to wind up the affairs of the business and convert its assets into cash to be distributed amongst the members and shareholders, the most effective insolvency procedure is a members voluntary liquidation (MVL).
An MVL can only be used if the company is able to draft a Declaration of Solvency, which is a document that states that the business has enough value to cover the cost of liquidation and repay all debts within a period of no more than 12 months. If the company is insolvent – unable to keep up with financial obligations and having no realistic prospect of escaping debt – then an MVL would not be an option and a creditors voluntary liquidation (CVL) would have to be considered instead.
Using a members voluntary liquidation for striking off a company differs from other procedures facilitated by an insolvency practitioner because it is not actually an insolvency proceeding, as by law the company has to be solvent to be considered eligible for an MVL.
Furthermore, all that is needed to initiate the process is a members voluntary liquidation resolution submitted by the directors of the company, along with the aforementioned Declaration of Solvency. The fastest and easiest way to begin an MVL is to speak with an insolvency practitioner about your case.
Many directors post the question: “During a members voluntary liquidation can a liquidator convert the MVL into a CVL, and if so what would be the reason for doing so?”
The answer to this is yes, a liquidator may hold a meeting of creditors' and convert an MVL into a CVL if it is found that the company does not have enough assets and funds to repay all creditors and contributories with the proceeds of the liquidation.
At the end of the liquidation the liquidator will hold a final shareholders' meeting, and 3 months later the company will be struck off the register. Although this technically marks the end of the business, for up to 6 years later it is still possible to seek a members voluntary liquidation restoration to have the company put back on the list of registered companies.
However, in order to accomplish this you would need to apply for a restoration order from the Court. In 2009, a procedure known as Administrative Restoration was introduced which allows a company to be restored without a Court order under certain circumstances. Usually one of the company's directors will apply for a restoration if there are liabilities or assets that were not properly dealt with before dissolution.
If you have any questions about the voluntary liquidation process feel free to ask one of our insolvency practitioners. We have professionals on hand ready to provide free phone consultations on 0800 644 6080 between the hours of 8am and 10pm. Our extensive office network comprises 100 offices across the UK with a partner-led service offering immediate director advice and support.