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Members' Voluntary Liquidation

  1. 1 Definition
  2. This occurs when the shareholders of the company wish the company to be liquidated in circumstances other than its insolvency.

    Even though a company placed into a MVL is not insolvent, only a licensed insolvency practitioner can be the liquidator.

    The procedure is appropriate only where a company is able to meet its liabilities and normally where there is a surplus available to members.

  3. Examples of circumstances where a MVL may be applicable are as follows:-
    1. where the purpose for which the company was incorporated has been achieved;
    2. where the proprietor of a small business wishes to retire;
    3. when the company is making losses and there is no real prospect of reversing its fortunes but there is the possibility of providing some return for the members;
    4. where there is a dispute amongst the shareholders as to the future plans of the company;
    5. as a means of eliminating unwanted subsidiaries in the reconstruction of a group of companies.

    The procedure can be adopted provided that the directors can swear a declaration of solvency.

    The definition of solvency for these purposes is that the company will be able to pay its debts in full together with interest (at the official rate) within a period not exceeding 12 months from the commencement of the liquidation. (sec 89(1).

  1. 2 Procedure
  2. The declaration of solvency is made at a meeting of the directors who will declare that they have made a full enquiry into the affairs of the company and have concluded that the company is able to pay its debts in full within 12 months of the commencement of the liquidation.

    An EGM is then convened on 21days notice at which a special resolution is passed to wind up the company and an ordinary resolution passed to appoint a liquidator. The liquidation commences at this stage as no sanction is required from creditors who have no say in the proceedings.

    The resolution to wind up the company must be advertised in the London Gazette and the liquidator’s appointment in a local paper. The resolution and declaration must also be filed with the Registrar of Companies within 15 days.

    The liquidator’s appointment must be notified to all creditors within 28 days.

  1. 3 Declaration of Solvency
  2. This is completed on a standardised statutory form (I.R. Form 4.70) and includes a statement of the company’s assets and liabilities at the latest practicable date.

    Assets must be stated at realisable value not book value.

    The statement should show that the company can pay all its liabilities in full.

    It must be sworn by the majority of the directors.

    It will still be a valid declaration notwithstanding any errors or omissions which may subsequently come to light.

  1. 4 Conversion to CVL
  2. Should a declaration be sworn without reasonable grounds that the company will be able to pay all its debts, then the director(s) making the declaration are liable to a fine or imprisonment or both (sec 89(4)).

    It is presumed in section 89(5) that if the debts are not paid in full within the period specified in the declaration, then the directors did not have reasonable grounds for their opinion.

  3. If the liquidator forms the opinion that the company is unable to pay its debts in full within 12 months then the liquidation converts to a Creditors’ Voluntary Liquidation (“CVL”) as follows:-
    1. the liquidator calls a meeting of creditors within 28 days of forming his opinion;
    2. notices are sent to all creditors on not less than seven days notice and the meeting is advertised in the London Gazette and two local papers;
    3. the liquidator presides at the meeting and must furnish creditors with a statement of affairs in the prescribed format;
    4. the creditors determine whether to retain the liquidator or appoint an alternative and decide whether to constitute a liquidation committee.
  1. 5 Summary
  2. If there is any doubt that the company will be unable to pay its liabilities in full the directors should commence a creditors’ voluntary liquidation in order to avoid the penalties. Should there be any surplus after the payment of all the debts, the shareholders will still benefit from any such surplus.