When we decide to start our own company, we go into this endeavour with the highest hopes of it succeeding. However, this is simply not always the case. Regardless of how long we are in business and even if the company is doing well, there are various reasons why a company must close. In case you have also found yourself in this situation, you might be considering your next step. One of the options you have is a members’ voluntary liquidation. If you are not sure what that actually means and whether it can be useful in your circumstances, keep on reading to learn more.
What is a members’ voluntary liquidation?
If you decide to formally close down your company, you can opt for a members’ voluntary liquidation. This is a cost-effective and tax-efficient way for shareholders to shut down their business and still get some profit from their investment. However, in order to make any profit from it, it is important to know that this approach is only available for businesses that are solvent. An insolvent company will first have to repay all creditors in full before the remaining funds if there are any left, can be distributed between the shareholders. So, keep in mind that an MVL is possible only when the company can be declared solvent and is able to pay all of its taxes, creditors and obligations in full. Furthermore, you should also look into how big of a profit you would be able to extract from this process seeing as how it is simply not financially beneficial for companies that earn smaller amounts of money. If you are not sure whether you qualify, it would be best to consult with an expert to see whether this is the right alternative for you and what other options you have at your disposal.
Why might business be placed into a members’ voluntary liquidation?
There are several reasons why a company would be placed in an MVL. For example, if it is no longer trading, there is no need to keep the business going. Then, there could also be new laws and regulations which limit the company’s ability to trade and the owners don’t think that continuing would be worth it. Maybe the directors or shareholders are thinking about retiring and there is no one to take over. Moreover, a members’ voluntary liquidation is a good method to divide the company’s assets between the shareholders who don’t want to work together anymore. Finally, an MVL can also be used as a tool for reorganizing a group of companies, i.e. if there is a subsidiary company that is dormant or no longer required, it can be shut down. Remember that this cannot be done in case the company is insolvent – in that case, consider a creditors’ voluntary liquidation or a company voluntary arrangement.
What are the stages of the members’ voluntary liquidation process?
In order to put the members’ voluntary liquidation process into action, all liabilities should be paid, all payments from the company’s bank account must be finished and all accounts need to be up to date. Also, there has to be a board of directors’ meeting where they will agree on taking this step and appoint the necessary agents and liquidators. The solvency of the company must also be declared and signed by the director(s). It must reflect the true state of affairs and prove that the company will be able to pay all its debts in full. Signing a false declaration is illegal and can result in a fine or imprisonment so make sure to prepare properly. Then, 75% of the shareholders must consent to the proposed plan before the liquidation process can commence.
Once the company enters liquidation, the appointed liquidator will start dealing with the formalities of the process, such as filing all sorts of forms, advertising to creditors to submit their claims and declaring and paying all creditors in full. After all outstanding debts are covered, the remaining funds can be distributed accordingly.
Of course, it would be best to hire experienced professionals who can advise you on this matter and lead you through the entire process so that you don’t miss any crucial steps. Luckily, licensed practitioners are easy to find and you should not hesitate when it comes to scheduling a consultation.
How long does a members’ voluntary liquidation take?
This process is relatively straightforward and should not take too much time. If there are no outstanding liabilities and all the paperwork is in order, the company can be closed within six to nine months. The first distribution of funds, however, can be expected within nine weeks of starting the process. While 90-95% of the funds will be distributed during this period, the remainder will be held back until the company has formally been closed. After the insolvency practitioners’ fees have been covered and all taxes paid, the shareholders will receive the rest of the assets.
Seeing as how an MVL is not suitable for every business out there, you should first seek advice and make sure that this is the right path for you. Once you are certain this is the way to go, the process is quite simple and beneficial.
