HomeFWJ TakeawayCompany rescueBusiness recovery and rescueWhat is the difference between a members voluntary liquidation and a creditors voluntary liquidation?

There are various types of insolvency process available to companies. Our brilliant team can guide you through them and provide the expertise you need. Let us help you today.

The key difference between a members voluntary liquidation and a creditors voluntary liquidation is that a members voluntary liquidation can only be used by a solvent company.

Members voluntary liquidation

A members voluntary liquidation is brought by the members or shareholders of a company who have decided that for whatever reason their business needs to be brought to an end in an orderly manner.

  • it might be that the shareholders want to branch off into other areas, or the business of the company is no longer something that is needed or required in the market. For whatever reason, it is a good idea for the shareholders to end the company by way of a members voluntary liquidation so that the company can be wound down by an independent insolvency practitioner, who will end the company using the correct statutory process.
  • in a members voluntary liquidation, as with a creditors voluntary liquidation, once the members voluntary liquidation is agreed upon a liquidator is appointed. They will collect in all of the assets of the company and distribute the proceeds of liquidation sales for the benefit of any outstanding creditors, with the surplus going to the shareholders in the proportion of their shareholding.

One of the key differences in a members voluntary liquidation is that the directors must swear a statutory declaration of solvency confirming that the company is able to pay all of its debts in full within 12 months at the latest. There can be very serious consequences for any directors who knowingly make a false declaration of solvency.

Creditors voluntary liquidation

A creditors voluntary liquidation, also known as a company winding up, is brought by a company when it is insolvent, with no realistic prospect of paying creditors, and the best option for creditors is to go into liquidation.

  • in the same way as in a members voluntary liquidation, a liquidator is appointed who will collect in and liquidate assets of the company, in order to distribute them.
  • however, one of the main differences between a solvent and an insolvent liquidation is that it is unlikely there will be enough monies to pay all the creditors as well as the shareholders. Creditors will be paid first, based on a statutory ranking process, so for example secured creditors take priority, and unsecured creditors will rank equally. If there is any money left over, then shareholders might be repaid.

Both processes, although very different in purpose, follow a similar structure when they go into liquidation. The key difference between them is whether the company is solvent or insolvent. This will need to be considered very carefully due to the consequences to a director who makes a false declaration of solvency.

If you are considering liquidation of your company and are unsure whether you should look at members voluntary liquidation or creditors voluntary liquidation, speak to one of our friendly company liquidation experts at Francis Wilks & Jones today. We will review your company’s situation with you and discuss the most suitable option for you.

I was impressed with the quality of the service provided and with how easily accessible and approachable the team was. FWJ’s help meant that I was able to safeguard the jobs of my staff and ensure that my customers had uninterrupted access to services in what was an incredibly difficult time for me. I wish I had instructed them earlier. I cannot recommend them highly enough.

The director of a company that had gone into administration to whom we provided insolvency and restructuring advice

Case studies

View all case studies

Contact us in confidence