A members’ voluntary liquidation is a process whereby the shareholders of a solvent company (i.e. one that can pay its debts) put the company into liquidation and formally close it down. Specific criteria apply, but it can be a tax-efficient and cost-effective way for company owners to extract the value of their business when it’s no longer required.
We’ll explain the members’ voluntary liquidation process for a private company registered in England and Wales, when it may be appropriate, the steps required, and how long it typically takes.
Please note that different processes apply if you want to liquidate a company registered in Scotland or wind up a company in Northern Ireland.
Key Takeaways
- A members’ voluntary liquidation (MVL) is the liquidation and formal closure of a solvent company.
- This process is initiated by a company’s members (owners), usually when they want to retire, stop running the business, or close down a defunct subsidiary.
- A liquidator is appointed to take control of the business, oversee the liquidation process, and act in the interests of creditors.
What is a members’ voluntary liquidation?
Liquidation is one way you can formally wind up and close a company. The type of liquidation available depends on whether the company is solvent (can pay its debts) or insolvent (unable to pay its debts).
You can use the members’ voluntary liquidation (MVL) process if your company is solvent and:
- You want to retire and release the proceeds of the business
- You no longer wish to run the business, but you don’t want (or are unable) to sell it or pass it on
- You’re pursuing other opportunities
- The company has fulfilled its intended purpose and is no longer required
- The company is a subsidiary that is now redundant
The MVL process, overseen by a licensed insolvency practitioner (acting as liquidator), ensures that a company is wound up and removed from the Companies House register efficiently and in accordance with legislation.
A members’ voluntary liquidation is approved by a 75% majority of the company’s members (e.g., shareholders) following a declaration of solvency by the directors. The insolvency practitioner takes charge of the process on the company’s behalf, liquidating its assets, arranging any payments due to creditors, and distributing the remaining money to the members.
When you decide to liquidate your company, you must cease trading and stop employing people immediately. You cannot begin the liquidation process otherwise. Only in certain circumstances can there be any continuation of business, with explicit approval by the liquidator.
If your company is insolvent or at risk of insolvency, you can’t use the MVL process. Instead, you’ll need to put your company into administration, arrange a creditors’ voluntary liquidation, or apply directly to the court for compulsory liquidation.
What is the members’ voluntary liquidation process?
Below are the 5 key steps in the members’ voluntary liquidation process for a private company limited by shares registered in England and Wales.
1. Make a declaration of solvency
The first step is to determine and confirm that the company is solvent. To do this, the directors must assess the company’s assets and liabilities and then make a ‘declaration of solvency’.
The declaration is a formal written statement confirming that, having carried out a full review into the company’s affairs, the directors believe the company can pay its debts, along with interest at the official rate, within 12 months of liquidation. It should also include the following information:
- Company name and registered office address
- Name and address of every director
- The time required for the company to settle its debts (no longer than 12 months from the date of liquidation)
- A statement of the company’s assets and liabilities
The statement of assets and liabilities should include the cost of the MVL process and any interest payable to creditors in its calculations. This ensures the members have a clearer picture of the amount of distributable capital that may be available to them upon the company’s liquidation.
2. Sign the declaration
A majority of the directors (or the sole director, if there is only one) must sign the declaration of solvency in the presence of a solicitor or notary public. Making a false declaration without reasonable grounds is a criminal offence, so you must be confident that the company is solvent.
3. Call a general meeting
Within 5 weeks of signing the declaration, the company must call a general meeting of the members. The members will discuss the MVL and pass a special resolution for the voluntary winding up of the company. A special resolution requires a 75% majority of members’ votes to pass.
At the same general meeting, the members must appoint an authorised insolvency practitioner as a liquidator to take charge of the company and oversee the liquidation. You can find a licensed insolvency practitioner in your area online.
4. Advertise the resolution in The Gazette
Within 14 days of passing the members’ resolution to wind up the company, the liquidator must advertise the resolution in The Gazette. This publication is an official journal of record consisting mainly of statutory notices.
The purpose of advertising in The Gazette is to publicly disclose the proposed MVL, allowing creditors and other interested parties to submit claims for any outstanding debts within 21 days. The liquidator will typically also write to all known creditors directly, asking them to submit claims for outstanding debts by a specified date.
If such claims are received, the insolvency practitioner will deal with them during the liquidation process and make any necessary payments.
5. Notify Companies House
The next step is to send the signed declaration of solvency to Companies House at Crown Way, Cardiff, CF14 3UZ. This must be done within 15 days of passing the resolution.
What is the insolvency practitioner’s role in the MVL process?
The insolvency practitioner’s role is to act as a liquidator and manage the members’ voluntary liquidation process efficiently and lawfully. As soon as you appoint the liquidator, they will take control of the company and perform various duties, including:
- Interviewing directors to gather relevant information
- Providing annual progress reports (where the liquidation takes longer than 12 months)
- Settling any outstanding contracts
- Meeting deadlines for all required paperwork and ensuring authorities (e.g., Companies House and HMRC) are kept up to date
- Ensuring the company’s creditors are notified of the MVL and involved in decisions (where necessary)
- Assessing and selling the company’s assets
- Distributing funds to creditors and members
- Arranging for the company’s removal from the public register at Companies House
In some situations, the liquidator can also distribute company assets to members ‘in specie’. This is when certain assets, such as land or property, are assigned a monetary value and distributed in their existing form value rather than selling them and distributing the proceeds.
What is the role of company directors during an MVL?
Your duties as a company director change once the liquidator takes charge. Your powers will cease, so you won’t have control of the company or any of its assets and won’t be able to act for or on behalf of the company.
You must attend interviews with the liquidator (if they ask), provide them with any information they request about the company, and hand over the company’s paperwork, records and assets.
How much does a members’ voluntary liquidation cost?
The cost of a members’ voluntary liquidation largely depends on the insolvency practitioner’s fee, which can vary significantly based on:
- Company size
- Value and category of assets to be sold
- How many creditors the company has, and how much debt (if any) needs to be repaid to those creditors
- The number of members entitled to distributions of the remaining capital
- Any disputes over company assets or between shareholders
The more complex the liquidation process, the higher the liquidator’s fee. However, a simple liquidation generally costs between £1,000 and £4,000.
Many insolvency practitioners can agree to a fixed fee, but some charge hourly or as a fixed percentage of the value of company assets realised or distributed.
How long does an MVL process take?
A members’ voluntary liquidation can take anywhere from a few weeks to 12 months, depending on the complexity of the company’s ownership structure, the nature of its assets, the extent of any liabilities that need to be settled, and whether all necessary paperwork and accounts are in order.
The insolvency practitioner should be able to provide an estimated timeframe before they take charge of the company. Once they’ve completed the MVL process, the company will be dissolved and no longer exist.
You can speed up the MVL process (and lower the cost) by carrying out certain tasks before appointing the liquidator, such as:
- Collecting any debts from clients and customers
- Dealing with employees – i.e. making them redundant or transferring them to another company (if applicable)
- Settling all outstanding debt with creditors and suppliers
- Selling company assets
- Preparing final annual accounts and a Company Tax Return as soon as possible after ceasing to trade
- Paying any Corporation Tax due
- Preparing a final VAT Return and paying any VAT due
- Ensure that all company records and paperwork are in order
You should also consult your accountant to determine whether an MVL is the best course of action and to ensure you qualify for Business Asset Disposal Relief.
What are the benefits of a members’ voluntary liquidation?
The principal benefit of the MVL process is the efficient and orderly closure of a solvent company by an independent liquidator, who oversees the entire process in accordance with the law, including the distribution of funds to creditors and members.
It’s generally the ideal choice if:
- The company’s affairs are complex
- There is potential for shareholder disputes
- The company will have final assets of more than £25,000 to distribute
From a taxation perspective, extracting funds may provide certain benefits because members’ distributions in an MVL are usually subject to Capital Gains Tax rather than Income Tax.
Capital Gains Tax (CGT) has lower rates than Income Tax and also provides an annual CGT allowance of £3,000 to individuals. Moreover, members may qualify for Business Asset Disposal Relief on their distributions. This means they may only need to pay 14% CGT rather than 18% or 24%.
However, tax savings must not be the primary reason for liquidating a company. Where HMRC suspects this is the case, funds distributed to members may be challenged under the targeted anti-avoidance rule (TAAR) and re-classified as subject to Income Tax.
Is there an alternative to a members’ voluntary liquidation?
If your company is solvent, you can apply to Companies House to get it struck off the register rather than initiating an MVL. Striking off a company is also known as ‘dissolving’ a company.
You can strike off your company if it satisfies the following conditions:
- Hasn’t traded or sold any stock in the past 3 months
- Hasn’t changed its registered name in the past 3 months
- Is not threatened with liquidation
- Doesn’t have agreements with creditors – e.g. a company voluntary arrangement (CVA)
The company dissolution process is much simpler and cheaper than a members’ voluntary liquidation. However, it may not be the most tax-efficient choice if your company has more than £25,000 of funds to distribute to members.
Speak to our experts about your options
A members’ voluntary liquidation can be an effective and tax-efficient way to wind up a solvent business that is no longer required. However, it can be more complex, time-consuming, and expensive than the company dissolution process, so it’s crucial to seek expert advice from an accountant before making a decision.
If you have any questions about this article or would like to speak to us about our Company Dissolution Service, please comment below or contact us on 020 3908 0044.
Please note that the information provided in this article is for general informational purposes only and does not constitute legal, tax, or professional advice. While our aim is that the content is accurate and up to date, it should not be relied upon as a substitute for tailored advice from qualified professionals. We strongly recommend that you seek independent legal and tax advice specific to your circumstances before acting on any information contained in this article. We accept no responsibility or liability for any loss or damage that may result from your reliance on the information provided in this article. Use of the information contained in this article is entirely at your own risk.
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