Members Voluntary Liquidations – Process and Practicalities

All MVLs have to go through the approved statutory process,, where a liquidator (usually a licensed insolvency practitioner) is appointed by the shareholders of the company wishing to liquidate and the company’s assets are sufficient to settle all its debts within a period not exceeding 12 months.

MVLs are typically used for purposes of reorganisation, for tax reasons, or in the case of owner-managed businesses to enable the shareholders to realise their interest in the company when they do not have succession plans. As with all things in the remit of insolvency practitioners, each solvent liquidation is different and brings its own challenges, as the following examples show.

 

This articlelooks at the practical stuff that needs to be thought about when it comes to solvent liquidations. A solvent liquidation is known as a Members Voluntary Liquidation (MVL), and is one of the main tools used by Insolvency Practitioners.

The Process is Better When More Planning is Done

Because every solvent liquidation is different, the MVL process is not always smooth. There are always things that can crop up that, if not spotted and dealt with, can slow everything down with the result being a less than ideal outcome.

Quite often where a business has been sold or stopped trading and liquidation is the route to pay out the reserves to shareholders, there are almost always areas where more thought and planning for the proposed liquidation might have made things conclude a little more smoothly. A couple of these areas are detailed below.

Two Key Areas for a Smoother Members Voluntary Liquidation Process

These are two key areas where more thought would help things:

Run off insurance. If a business that required run-off insurance for x years, where a policy was taken out that didn’t accommodate the proposed liquidation and would lapse once the process began, then that must be dealt with quickly by the liquidator.
Deferred Consideration. If a business was due to receive deferred consideration for years to come which was secured by way of a debenture in the name of the company to be wound up, then whilst the future deferred consideration could be assigned to shareholders, the debenture could only be effective, if ever needed, in the name of the company. This would mean having to keep the liquidation open for many years until the deferred consideration is received and the debenture is no longer needed.

In bothof these cases (which are hypothetical but based on real cases) it is clear that the outcome of a member’s voluntary liquidation where these issues featured, would have been quicker, smoother and cleaner, if they had been addressed as early as possible. The moral of this tale is that all companies having and looking for cash flow problems and solutions, and possibly considering an MVL, must understand that not all MVL’sare not the same and that any Insolvency Practitioner worth their salt must dig deep as early as possible to make sure the outcome is optimum.