A members’ voluntary liquidation is a process whereby a solvent company is wound up at the request of its members.
A members’ voluntary liquidation is only appropriate if the company is solvent, when it has sufficient assets to repay all of the company’s creditors within one year of the winding-up commencing. In any other circumstances the company can only be wound up by creditors voluntary liquidation or under the supervision of the court.
There are a number of reasons why the members of a solvent company may choose to wind it up:
- They wish to retire
- The company realised its best potential
- The directors may wish to invest their capital in other ventures
- The shareholders may wish to unlock company assets and structure organisations in a tax efficient manner
- To dispose of dormant companies that no longer have any useful purpose
A member’s voluntary liquidation commences when the members pass a resolution to wind-up the company and to appoint a liquidator. The process brings finality to the corporate responsibilities of directors.
A form, known as an E1-SAP (Declaration of Solvency), needs to be approved at the meeting of the directors and will summarise the assets and liabilities. This must be accompanied by an independent accountant’s report confirming the company’s assets and liabilities, and the opinion of the directors of the company that the company will be able to pay its debts in full.
The task of the liquidator in such circumstances is to maximise the value and efficiency of the process to the benefit of the shareholders.
The advantages of a members’ voluntary liquidation are:
- Tax efficient method of distributing cash/ assets to shareholders
- The funds distributed to the members are taxed as a capital gain, and not as income
- In certain circumstances property can be distributed to the shareholders without incurring stamp duty
- Avoids on-ongoing audit and accounting costs
- Can be used as part of a restructuring process where a group wants to streamline its structure
- Company avoids being involuntarily struck off
Crowe has a long and successful track record in restructuring and insolvency, bringing together a cross departmental team of advisory, tax, accounting and company law specialists to provide the best advice and ensure the best outcomes for our clients.
In addition to assisting with all the statutory procedures, we can advise and guide you through the process, providing expert financial and tax advice to maximum the return available to shareholders.