When a solvent company is no longer needed, or has ceased to trade, it may be wound-up by members voluntary liquidation.
The directors’ obligation to administer the company (preparing accounts, filing annual returns, etc.) ceases when the winding-up commences.
A members voluntary liquidation commences when the members pass a resolution to wind-up the company and to appoint a liquidator.
The winding-up process is completed by the liquidator, who is appointed and supervised by the company’s members. At the end of the process the liquidator can either sell the company’s assets and distribute the net proceeds to the members, or transfer the assets directly to the members.
A number of tax advantages are associated with members voluntary liquidation. The most commonly considered tax advantage is that the funds distributed to the members are taxed as a capital gain, and not as income. Another significant advantage is that a nominal rate of stamp duty applies to the transfer of property from a company to its’ members on winding up.
A company is eligible to be wound-up by members voluntary liquidation 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. The directors must prepare and swear a declaration of solvency, which sets out the company’s assets and liabilities, and states that the company satisfies the criteria to be wound up by members voluntary liquidation.
We have extensive experience of advising directors on preparing for members voluntary liquidation, and of acting as liquidator. We would be pleased to advise and assist directors of companies that are considering winding-up in this way.