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Voluntary Liquidations

Formal insolvency Process

Voluntary Liquidations

The two types of voluntary liquidation are Members’ Voluntary Liquidation and Creditors’ Voluntary Liquidation. 
(See here for more information on Compulsory Liquidations)

Members’ Voluntary Liquidation

If your company is solvent (can repay its debts), then a Members’ Voluntary Liquidation (MVL) can be a cost-effective way to close it down. They are often part of an exit plan for a profitable company. Some scenarios in which you might use an MVL are if you want to retire, if you want to step down as director of your family business and no one else wants to run it, or if you simply want to step down from your role. 

The process for an MVL is as follows: firstly, if you’re an English or Welsh company, you must make a declaration of solvency, or, if you’re a Scottish company, apply for Form 4.25 from the Accountant in Bankruptcy. Before making a declaration of solvency, you must review your company’s assets and liabilities.

In order to declare solvency, your company must make a statement saying that, having assessed the company, the directors believe it can settle its debts with interest at the official rate. This statement must also include the company’s name and address, the names and addresses of the directors and how long the company will require to pay its debts, which must be no longer than one year from when the company is liquidated. 

Following this, a majority of your company’s directors must sign the declaration, or Form 4.25, in the presence of a solicitor or notary public and, within no more than five weeks, call a general meeting with shareholders in order to pass the resolution for voluntary winding up. At this meeting, an authorised insolvency practitioner will be appointed as liquidator for your company. 

Finally, within 14 days you must advertise the resolution in The Gazette and, within 15 days, send the declaration to Companies House or send Form 4.25 to the Accountant in Bankruptcy. 

Creditors’ Voluntary Liquidation

If your company cannot settle its debts, then it is still possible to liquidate voluntarily through a Creditors’ Voluntary Liquidation (CVL), where a majority of shareholders agree to liquidation. In order to undergo a CVL, you must first gain shareholder approval by calling a meeting and asking them to vote. At this vote, 75 per cent of shareholders, by value of shares, must consent to the passing of a winding-up resolution. 
 
Once the vote has passed, you must appoint an authorised insolvency practitioner to act as liquidator during the process. You must also call a creditor meeting in order to provide details of your company’s financial affairs. Often, creditors will nominate a liquidator and, if this differs from that chosen by the shareholders, the creditors’ choice will usually take precedence. 
 
As with an MVL, you must then advertise the resolution in The Gazette within 14 days and send the resolution to Companies House within 15 days. 
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