When a company is struggling to pay its debts it can move into one of two types of liquidation. Members Voluntary Liquidation (MVL) is when the directors declare that the company is solvent. The company directors will make an official declaration that it can repay its debts from 12 months of the MVL starting point. This point is sometimes referred to as winding-up. Alternatively, when a company can’t repay its debts, a Creditors Voluntary Liquidation (CVL) may occur. This is when the directors haven’t made a declaration and it becomes advisable for the company to wind up due to an inability to repay debts. Whether a company heads for an MVL or CVL, there are strict timelines to adhere to. Additionally, liquidators play a specific role in the processes. Learning more about what happens can make a company voluntary liquidation easier to understand.
When is an MVL appropriate?
In order for an MVL to take place, the majority of the company directors must agree that it can repay its debts within 12 months. When this agreement is made, they must make a statutory declaration of solvency. This declaration will include a statement of the company assets and liabilities, which becomes available at the latest practicable date before the declaration itself is made. After this, the company members will publicly pass a motion that the company is winding up. This motion takes place in a general meeting, under the Companies Act 2006.
What should a company do before announcing an MVL?
Before voluntary liquidation takes place under an MVL the company must make an announcement in the Gazette within 14 days of the general meeting. Additionally, they need to send an official notice to the registrar within 15 days of the general meeting.
When is a CVL more appropriate than an MVL?
If a company is unable to pay its debts then a CVL becomes more appropriate than an MVL. The processes for entering a CVL are similar to the MVL. When the company directors realise they can’t pay the company debts they will pass a special resolution under the Companies Act 2006 that states they cannot continue with business. Much like an MVL, the resolution must be advertised in the Gazette within 14 days of the decision being made. A notice must also be sent to the registrar within 15 days of the decision being made. After the meeting where the resolution is made, a further meeting takes place with the creditors. This must take place within 14 days of the resolution and the creditors must have 7 days notice. The directors must create a statement of affairs and at least one director must attend the meeting. The meeting must be advertised in the Gazette and at least two local newspapers in the area where the company operates. A liquidator will be appointed during this process and they must receive a statement of affairs from the directors too.
Can an MVL be changed to a CVL?
If the liquidator decides that a company cannot repay its debts within the period the directors declare, yes it can. A meeting of the creditors must be held within 28 days and the MVL turns into a CVL from the date of the meeting. The liquidator must give the creditors 7 days notice for the meeting. They must also advertise it in the Gazette and two local newspapers where the company operates. Finally, they need to send a statement of affairs to the Registrar within five days of this meeting.
What role do liquidators play during the MVL and CVL process?
The appointed liquidator will use the statement of affairs for winding up the company assets. This means calling them in and redistributing them to the creditors who are managing the outstanding credit. If there anything left over after meeting the creditors financial requirements, the assets are divided between remaining members of the company. Liquidators must make notifications of their appointment when and how a liquidator needs to make their announcement of appointment differs between an MVL and a CVL. In both cases, the liquidator will make an announcement in the Gazette within 14 days of their appointment and they must also send notice to the Registrar. If the liquidation is voluntary, they may make further announcements at their discretion. Liquidators also need to send reports to Companies House. Liquidators need to move quickly after the creditors meeting takes place. They must send a statement of affairs and any relevant paperwork to the Registrar within five days. Liquidators reports are then sent 12 months after the process starts and every 12 months until the winding-up ends.
What happens when the liquidator changes?
If the liquidator does change during the winding-up process, they must issue a progress report if this happens within the first year. After this point, they too must send a progress report to Companies House every 12 months.
What happens after the company affairs are fully wound up?
A final progress report is sent from the liquidator to a final meeting of creditors and the company members. The liquidator must advertise this meeting at least a month before it takes place. A week after this meeting, the liquidator sends a final progress report to the Registrar. Unless a court order states otherwise, the company is dissolved within three months of the report being sent and this is registered at Companies House.