Members' Voluntary Liquidation

A members' voluntary liquidation is a means of winding up a solvent company which is no longer trading. This procedure enables the company's assets to be realised and distributed to its creditors with any surplus paid to the shareholders.

Topic

Summary
What is the nature of the procedure?

The company is solvent but is no longer trading.

 

Procedure

 

Declaration by the majority of directors that, having made full inquiry, they are satisfied that the company will be able to pay its debs in full, within 12 months. The declaration must be made within the five weeks immediately preceding the commencement of a MVL. A MVL is commenced by the company’s shareholders passing a special resolution.

 

A liquidator is appointed and collects the company's assets, realises them and distributes them in the prescribed order (see "What is the priority of payments?" below).

 

Once all distributions have been made, a final meeting of the shareholders is held. The company will then be dissolved three months later.

 

Who can commence the procedure?

A MVL is commenced by shareholders passing a special resolution.

Are there any corporate thresholds?

75 per cent of the company's shareholders must resolve to place the company into liquidation.

Is there a moratorium?

No.

Who is in charge?

The liquidator. All powers of the directors cease, except so far as the company in a general meeting or the liquidator allows them to continue.

How are they selected, including voting thresholds?

By the shareholders. The liquidator is usually appointed as part of the special resolution to wind up the company, although the appointment can be made subsequently by the shareholders passing a separate ordinary resolution.

Is there a plan? Who votes and what are the thresholds?

No. The liquidator's role is to collect the company's assets, realise them and distribute them to the company's creditors and, if there is a surplus, to the shareholders.

 

As the company is solvent there is no creditor involvement.

 What can the plan do?

N/A.

If not approved by the necessary majorities, can the plan still be approved? N/A.
What is the exit route?

Dissolution of the company.

 

However, if during the course of the MVL the liquidator determines that the company is insolvent, then the MVL must be converted into a creditors' voluntary liquidation (CVL).

What is the priority of payments?
  1. Fixed charge holders
  2. Expenses of the liquidator
  3. Preferential creditors
  4. Floating charge holders
  5. Unsecured creditors (pro rata)
  6. Shareholders receive surplus (if any)
Is there a creditors committee? No.
How involved is the court?

Under a MVL no court order is required.

How is the liquidator paid? The rate of remuneration is usually agreed with the shareholders prior to liquidation and is either on a time cost basis, or in simpler cases as a fixed fee.
Are there any general comments on the use of this procedure? MVL is a commonly used for the return of capital to shareholders. Its use is declining in light of the recent changes to companies law that allows (out of court) returns of capital.

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