What does it typically involve?
Members voluntary liquidation tends to be carried out by the directors where a company is solvent and has reached the end of its useful life.
This process is undertaken by the company’s shareholders and provides a tax efficient mechanism for shareholders to extract value from the company or for a demerger or reconstruction.
It essentially involves the solvent winding up of the company. The directors call a shareholders’ meeting and at that meeting the shareholders place the company into liquidation. The declaration of solvency must be sworn by a majority of the directors and confirmation that creditors can be paid in full, including statutory interest within 12 months, given. However, directors should be aware that it is a criminal offence to swear a declaration of solvency, when the company is not solvent, so they should exercise caution when doing so.
There is no creditors’ meeting as the creditors will be paid in full. The liquidator’s duties are to ensure that all creditors are paid in full and that the remaining assets are distributed amongst the shareholders.
There is no investigation or directorsâ€™ conduct report as the company is solvent. Once the company’s assets have been distributed the liquidator ceases to act and the company is struck off. At this point, no future creditor can then apply for the company to be restored to theÂ register.
This differs from the situation where an application is made to strike a company off. In this instance, at some point in the future, any creditor can apply for the company to be restored and the directors duties are backdated to the time when the company was struck off. This can be extremely onerous for directors as all the annual returns and accounts will then be overdue.
We must stress that this is a brief overview and is not intended to allow a director to self-diagnose. We recommend that if you are under threat or considering entering into liquidation, you contact us for a free consultation to ensure that you take the appropriate action.