A members voluntary liquidation is a voluntary liquidation process brought by the shareholders (members) of a solvent company.
It is often used when a company is no longer required, either because the shareholders and directors wish to move onto different projects, or because the role of the company is no longer necessary in the marketplace. It is a very beneficial tool to bring about an orderly wind down of a company that has traded, and is often used to avoid any misunderstandings with creditors or directors claims in the future.
If the members voluntary liquidation fails because of insolvency?
Sometimes, a members voluntary liquidation will fail because it later transpires that despite the directors’ reasonable belief that the company will be able to pay all of its creditors including statutory interest within 12 months, this turns out not to be the case.
- if this happens, then it is very likely that the members voluntary liquidation will have to be converted into an insolvent winding up, such as a creditors voluntary liquidation, also known as creditors winding up.
- this will occur if the liquidator in the members voluntary liquidation realises that it is not going to be possible for the company to meet all its debts. The liquidator will follow the relevant procedure for failing the members voluntary liquidation, and the company will then inevitably go into creditors voluntary liquidation instead.
Because there is no automatic stop on legal proceedings against a company that is either in members voluntary liquidation or creditors voluntary liquidation, it is possible still for a creditor to present a petition to the court to have the company wound up despite the company being in members voluntary liquidation. If the application is successful, the company goes into compulsory liquidation and follows that process instead.
When the members voluntary liquidation is successful?
The liquidator in the members voluntary liquidation will, like all liquidation processes, collect in and liquidate assets of the company, hold liquidation sales, and then distribute the proceeds of liquidation sales as part of the liquidation process.
- once this has happened, and the affairs of the company are properly wound up and all assets have been distributed either to creditors or shareholders or both, then the liquidator will provide a final account of the liquidation, showing all the transactions that have taken place during the liquidation.
- that final account will be sent to the shareholders and then to the Registrar of Companies. The company will be automatically dissolved at Companies House 3 months from the date of registration of the final account and return with the Companies Registrar.
Alternative exit from members voluntary liquidation
Whilst unusual, it is possible for a person to apply for a stay of the members voluntary liquidation, either on a temporary or final basis. The court will only grant a stay if it is in the best interests of the company and its creditors, but it is possible, and therefore this is another potential exit from members voluntary liquidation particularly if the stay is granted for so long that if effectively ends the liquidation.
Members voluntary liquidation is a very effective tool for a solvent company. Carried out by a professional it can protect the company and its members from future comeback. However, it is important that the correct process and procedure is followed. Our experts at Francis Wilks & Jones act for companies on members voluntary liquidations on a daily basis and can guide you through the process. Contact our friendly team us for further details.