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1 focus insolvency group A Guide to Member s Voluntary Liquidation Licensed Insolvency Practitioners & Business Recovery Professionals Call: or

2 Contents Introduction Is my company solvent? What is wrongful trading? When is a Member s Voluntary Liquidation appropriate? Benefits of Member s Voluntary Liquidation The Member s Voluntary Liquidation process Why choose Focus Insolvency Group? 1.

3 Introduction A Member s Voluntary Liquidation (MVL) is the formal procedure for winding up and liquidating a solvent company. This means that the company has sufficient assets to cover its debts and everyone will be paid in full, with any remaining funds distributed to shareholders. As the company is solvent entering into MVL is voluntary. Because the process is voluntary and the business is solvent, the process is often relatively straightforward and often costs less than a creditor s liquidation. When a company is dissolved through Companies House it is often a forgotten fact that a creditor could apply to have the company restored within a period of 20 years from dissolution, however this is not the case if the company is closed through Member s Voluntary Liquidation. There can also be tax efficient benefits to winding up a company through a Member s Voluntary Liquidation. 2.

4 Is my company solvent? Before a company can enter a Member s Voluntary Liquidation (MVL) it must make a declaration of solvency. There are three tests outlined below to establish if your company is solvent or insolvent. Cash flow test. Can the company pay its debts as and when they fall due? If you are finding that the company is suffering from poor cashflow and as a result it is unable to meet payment terms of its creditors or maybe it is not paying national insurance and income tax contributions for directors or staff, then your company is more than likely insolvent. Balance sheet test. Does the company owe more than it owns, or in other terms are the company s assets exceeded by its liabilities? If the answer is yes, then the company is more than likely insolvent. Legal action test. If a creditor has taken legal action and has obtained a county court judgement (CCJ) or a statutory demand against the company, this may indicate the company s insolvency and allow the creditor to petition to wind it up. Therefore if your company has one or more CCJs and/or a statutory demand, it is more than likely insolvent. If you believe that your company has failed any of the above tests then it will not qualify to be closed via a Member s Voluntary Liquidation. It is crucial that you take immediate action to address the company s insolvent situation. You can contact us directly to discuss the options that are still available to you and your company. What is wrongful trading? Directors of a company have a legal obligation to seek appropriate advice or take action if they believe the company has insufficient cashflow to pay its debts as and when they fall due. If they don t, then directors can find themselves personally liable for the debts that they have accrued since they should have taken those steps. The Company Director Disqualification Act 1986 deals harshly with directors who ignore the early warning signals and continue to trade. 3.

5 When is a Member s Voluntary Liquidation appropriate? As previously stated, to take advantage of an MVL the company in question must be able to declare its solvency. If the company is considered insolvent or is not able to cover its debts in full then other options to wind up the company should be explored such as Creditor s Voluntary Liquidation (CVL). If an insolvent company wished to continue trading then other insolvency procedures such as a Company Voluntary Arrangement (CVA) should be considered. It is for this reason that directors should contact Focus Insolvency Group who can guide you through your options. Members Voluntary Liquidation (MVL) will be appropriate where: The company is solvent Directors and shareholders wish to liquidate and wind up the company All company debts can be covered by the liquidation with any surplus distributed to shareholders Focus Insolvency Group assess every situation and provide directors with the best options available to them. 4.

6 Benefits of Member s Voluntary Liquidation An MVL can have a number of major advantages for directors and shareholders of a solvent company that is to be wound up. The main benefits of an MVL are: Provides a potential tax efficient exit route to shareholders (see below) Provide a managed exit as the shareholders control the process Useful for shareholders who are considering retirement Closure of a company when it has come to the end of the project for which it was formed Enables a group of companies to close down a subsidiary which is no longer required As from 1st March 2012 if a company undergoes an informal winding up procedure, HMRC will allow distributions up to a maximum of 25,000 to be treated as capital. Should total distributions exceed 25,000 then distributions will be treated as dividend income. However, should the company enter into Member s Voluntary Liquidation, the 25,000 limit will not apply and distributions will be treated as a capital receipt and have the tax advantage of being subject to capital gains tax rather than income tax. The costs of an MVL will be paid from the funds at bank and will significantly save you money when compared with the tax savings. We strongly recommend that independent professional tax advice is taken prior to a company entering an MVL for this reason; Focus Insolvency Group can put you in touch with a trusted tax professional if required. 5.

7 The MVL Process Stage 1: An Insolvency Advisor at Focus Insolvency Group will help you explore your options. They will discuss the company s financial position with you, review the company s viability, financial forecasts and background and explain the various procedures available, such as a voluntary liquidation, CVA or Administration and discuss which would be appropriate for your company. Our consultation and advice is completely free of charge. Stage 2: Firstly, the directors must make a Declaration of Solvency which states that the company is solvent and is able to repay its debts together with statutory interest within 12 months. Once the Declaration of Solvency has been made, a meeting of the shareholders is called to pass the necessary resolutions and appoint a liquidator. An authorised Insolvency Practitioner must be appointed as the liquidator and it is their role to realise all the assets of the company and distribute to creditors in the correct order. Stage 3: Following settlement of all the company s debts, the liquidator will then distribute the remaining funds between the shareholders. Stage 4: If, during the course of an MVL, the liquidator finds that the company will be unable to pay its debts in full within the period stated in the Declaration of Solvency, he must call a meeting of creditors to take place not later than 28 days after the day on which he formed the opinion. The process is then converted to a Creditors Voluntary Liquidation (CVL). Please note it is a criminal offence to make a false Declaration of Solvency. 6.

8 Why choose Focus Insolvency Group? Focus Insolvency Group has successfully established itself as a top 20 Insolvency firm. We pride ourselves on having the correct blend of expertise, experience and professionally qualified staff to deliver all the necessary services and products, but with the traditional bespoke personal service of a local and friendly company at a competitive cost. We understand that a company can find itself in financial difficulty for a variety of different reasons and we will take time to meet with Directors and key management to understand what has happened within the company and how we can help. We provide this service completely free of charge and without obligation. Our team work with management to identify the available options, understand their implications and agree a course of action designed to result in the best possible outcome. Our Company Values... Our success and progression has been built on a number of core company values; INTEGRITY QUALITY - SERVICE VALUE INNOVATION We have strong ethics and are always open, honest and reliable. Delivering excellent standards consistently from our experienced and qualified directors and staff. We take pride in delivering the highest standard of service possible. We strive to deliver exceptional value to our Referrers and their clients. We strive to be better every day and we take steps to make this happen. ACCOUNTABILITY We accept that we have an obligation to take responsibility and account for our actions and will do so willingly. POSITIVITY We have a can do attitude and are passionate about our business. 7.

9 Further Information If you would like further information or guidance on anything that you have read in our guide Focus Insolvency Group are here to help you. With extensive experience in helping people and companies regain control of their finances; our immediate aim is to provide you with free advice and assistance and to structure that correct solution to your problem. The expert advice we offer will always be the best advice for you, dependent on you or your company s circumstances and financial situation. Rest assured that we will not charge anything until a debt solution is in place! Call today on or

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