Why you shouldn’t worry if a company that owes you money is pursuing an MVL
If you aren’t totally familiar with the term and hear about “liquidation” then it might immediately conjure up an image of a business in financial distress and closing because it has no option.
With a Members’ Voluntary Liquidation (MVL) this is actually the opposite scenario because it’s a formal legal process that is used to wind up the affairs of a solvent company.
For whatever reason – retirement, life changes, freeing up capital for new ventures etc – the owners have decided to close.
The crucial factor is that MVLs are only available to solvent companies – which legally means those that can pay all their debts in full, with interest if necessary, within 12 months.
As a creditor, understanding this process will give you peace of mind that you will receive everything you’re due in a timely manner.
Our quick guide will explain precisely what an MVL is, how it affects you and your business and what your rights are.
An MVL is a liquidation but not a “liquidation”
An MVL is an insolvency process initiated by a company’s directors and shareholders to close down a solvent business. Directors have to make a formal legal declaration known as a Declaration of Solvency that proves that a company can pay all of its debts within the set 12 month period.
Once shareholders decide to proceed with an MVL then they have to appoint a licensed insolvency practitioner who will act as the liquidator. Among their responsibilities are:-
- To take control of the company’s affairs
- Sell or dispose of the company’s assets
- Verify and settle all creditor claims including statutory interest
- Distribute the remaining funds to shareholders
Like any liquidation process, once the liquidator has been appointed then the directors’ powers cease and the liquidator manages the entire process.
The MVL process from a Creditor’s perspective
- Notification – as a known and verified creditor, you will be formally notified of the liquidator’s appointment and that the company will be entering an MVL process.
- Making a claim – The liquidator will ask all creditors to submit their claims, usually with supporting documentation such as invoices or statements. They will provide a deadline for these submissions which will be a minimum of 21 days’ notice. It’s vital to submit a claim within this period to ensure it will be included.
- Payment of debts (to you) – The liquidator will review all the claims and once fully validated will pay the outstanding debts in full, along with any statutory interest accrued.
- Conclusion – An MVL process will typically conclude within 12 months
In an MVL, a creditor’s primary right is to be paid in full with the liquidator legally obliged to ensure all creditors are paid before any money is returned to the company’s shareholders.
Any concerns about the handling of the MVL should be directed to the liquidator in the first instance. They can provide clarification and address any outstanding issues or queries. If you’re still not satisfied after speaking with the liquidator then you have the right to take things further by making an official complaint to the Insolvency Practitioner’s regulatory body via The Insolvency Service’s complaints portal.
We hope this has explained some of the outstanding questions for you and alleviated some of the concern if you hear that one of your debtors is entering a Members’ Voluntary Liquidation in the near future.
Alternatively, you might want to explore an MVL yourself as it can free up assets and be completed usually within ten days.