What does Members Voluntary Liquidation mean?
A Members Voluntary Liquidation is a frequently used process that allows Scottish directors to close a solvent company that is no longer required. It can be a useful and cost effective way to release the companies assets, pay off creditors and distribute the remaining assets or cash to shareholders.
There are two types of voluntary liquidation process in Scotland but only one is open to solvent companies:
To make use of a Members Voluntary Liquidation your company must be in a solvent state and a licenced Insolvency Practitioner must be used.
Is my company solvent?
A company is deemed to be solvent when it has enough assets to pay off all creditors within a period of 12 months including statutory interest and liquidation costs.
If your company is found to be insolvent there are other options open to you, for example a Creditors Voluntary Liquidation (CVL).
What is the Members Voluntary Liquidation Process?
Members Voluntary Liquidation is covered by The Insolvency (Scotland) (Receivership and Winding up) Rules 2018.
Members Voluntary Liquidation Steps;
All meetings can be via online tools and attendees no longer need to be physically present.
- Step 1. Establish that your company is solvent – ensure that you can definitely pay all creditors within the next 12 months.
- Step 2. Contact us – we will let you speak with a licenced Insolvency Practitioner who can give you qualified advice and prepare all the paperwork, making the whole process run smoothly from the beginning.
Your IP will require you to complete two documents;
- A Declaration of Solvency – a majority of directors must sign a declaration in front of a solicitor or notary. The statutory declaration states that the director/s have made a full enquiry into the company’s financial situation and that they will be able to pay off all creditors debts, including interest, within 12 months.
- A Statement of Assets and Liabilities – this details the financial position of the company and is similar to a Statement of Affairs. This document must also include all statutory interest on creditors debts as well as the insolvency practitioner fees.
NB. The declaration of insolvency must be made 5 weeks before the shareholders meeting to start the liquidation.
- Step 3. Call a shareholders meeting – The purpose of this meeting is to pass a formal winding up resolution and officially appoint the insolvency practitioner.
- This can be done by written resolution (email is acceptable) where members are requested to vote in favour of the liquidation or not.
- If a traditional meeting is called then shareholders must be given at least 14 days notice. However, if 90% of the members give consent to short notice, the meeting can be held immediately.
- Either way, If 75% of the shareholders agree then you can pass a resolution for winding up via an MVL. This would then become the official start date of the liquidation and the start of the 12 month period.
- Step 4. Your IP begins liquidating the company assets and contacting all creditors for settlement.
- The special resolution to wind up will be advertised in the Edinburgh Gazette within 14 days.
- A copy of the special resolution will be sent to the Accountant In Bankruptcy and the Registrar of Companies for Scotland within 15 days.
- If shareholders wish to receive a partial payment of funds quickly (within one or two weeks) they can submit a Deed of Indemnity. This facilitates an upfront payment with the rest to follow.
An MVL is normally processed quite quickly but you must ensure it is completed within 12 months with no outstanding debts to creditors; If there are, then the MVL could become a Creditors Voluntary Liquidation (CVL) and an investigation would be launched into the director’s conduct.
How is capital distributed after liquidation?
Assets are distributed pro-rata according to shareholding.
How much does a Members Voluntary Liquidation Cost?
Disbursements – This covers necessary notices in the Edinburgh Gazette and a small bond.
Insolvency fees – These are standard throughout the industry and are normally around £4000 + VAT depending on the size of your company.