Case Study - Members Voluntary Liquidation Explanation & Retirement of a Greengrocers

Summary

In this video, the process of a Members Voluntary Liquidation (MVL) for a solvent company is explained, using a greengrocer's liquidation as an example. The business owners, who were both directors and shareholders, decided to retire and close the business after three decades of success. The liquidator outlines the steps involved: swearing a Declaration of Solvency, realizing company assets, paying off creditors, and distributing remaining funds to shareholders. Throughout the process, the liquidator emphasizes the importance of fast action, clear communication, and transparency, ensuring a smooth and efficient closure of the business.

Takeaways

• 😀 A Members Voluntary Liquidation (MVL) is a tax-efficient way to close a solvent business, particularly when the business owners wish to retire.
• 😀 The owners of the greengrocer business were both directors and shareholders, which simplified the liquidation process.
• 😀 Directors must swear a declaration of solvency in front of a solicitor, confirming the company can pay all its liabilities in full within a year.
• 😀 The liquidation process involves preparing legal documents, selling company assets, and ensuring all liabilities are paid.
• 😀 The company's bank balance was transferred to a designated liquidation account, separating it from other funds.
• 😀 Tangible assets, such as fridges and shelving, were sold to raise funds, though perishable goods like stock were discarded.
• 😀 The company property was sold quickly due to high demand, contributing to the liquidation pot.
• 😀 Creditors were paid promptly to reduce statutory interest costs, and all trade creditors were paid as soon as money was available.
• 😀 Once creditors were paid, the remaining funds were distributed to shareholders as dividends from the liquidation.
• 😀 Clear communication with directors and shareholders throughout the process reassured them and kept them updated on the liquidation's progress.
• 😀 After asset realization and creditor payments, the liquidation will be closed after a final review of the files to ensure everything is complete.

Q & A

What is a members voluntary liquidation (MVL)?

A members voluntary liquidation (MVL) is a process used to wind up a solvent company, typically when the company has assets that exceed its liabilities. It is a tax-efficient way for business owners to retire or close down their company.

Why was an MVL chosen for the greengrocer's liquidation?

An MVL was chosen because the greengrocer's business was solvent, meaning it could pay all its liabilities in full. It was recommended by the company's accountant as the most tax-efficient way to close the business.

What steps are involved in placing a company into liquidation?

The steps include preparing necessary documentation, having directors swear a declaration of solvency, holding meetings to approve the liquidation, and realizing the company's assets, including selling property and tangible goods.

What is a declaration of solvency and why is it required?

A declaration of solvency is a formal statement made by the directors confirming that the company can pay all its debts within one year. It is required to ensure that the liquidation is for a solvent company and that the process is carried out properly.

How are the company's assets managed during liquidation?

During the liquidation, assets such as property, bank balances, and tangible goods like fridges and shelving are sold. The money raised from these sales is then placed into a designated client account for distribution.

What happens to the creditors during the liquidation process?

Creditors, including trade creditors, are paid as soon as possible after the liquidation starts. The liquidator ensures that statutory interest on outstanding debts is minimized by making prompt payments.

How is the remaining money distributed after paying creditors?

Once all creditors and their statutory interest are paid, any remaining funds are distributed to the shareholders of the company as dividends.

How quickly was the property sold in this case, and why?

The property was sold quickly because there was high demand for commercial properties at that time. This allowed the liquidator to realize the asset and add the proceeds to the liquidation pot.

Why is it important for a liquidator to distribute money quickly to creditors and shareholders?

It is important to distribute money quickly because delaying payments can result in the accrual of statutory interest, which increases the total amount owed. Prompt distribution ensures that creditors and shareholders receive their due amounts efficiently.

What should directors look for when choosing a liquidator for a solvent liquidation?

Directors should ask how quickly the liquidator will distribute money to creditors and shareholders, whether they keep reserve funds, and how they ensure timely payments to minimize statutory interest.