The important aspects of corporate simplification
Shareholders can wind up a solvent company and receive a distribution of any surplus assets using a procedure known as a Members’ Voluntary Liquidation.
Using an MVL, distribution of assets will occur through payment of a cash dividend or via a distribution in specie (in kind) of its assets that goes directly to its shareholders.
The procedure can be used for solvent companies, yet the legislation behind it is found in the Insolvency Act 1986 and only a Licensed Insolvency Practitioner can act as liquidator.
Essentially, the procedure enables the return of capital to shareholders in a way that is considered tax efficient, while businesses can also be restructured and assets distributed in specie.
What the process involves
The process reduces risk since all creditors must prove debts in the liquidation, while the existing management of a business will be relieved of some of their responsibilities.
This allows for resources to focus on the most important aspects of the situation, whereas directors would otherwise need to comply with their duties, such as compiling and filing the necessary accounts.
All other parts of the Companies Act 2006 would also need to be met although these responsibilities end should a company enter liquidation.
At this point assets can be returned to shareholders while any longstanding issues can also be dealt with by the liquidator in a controlled manner.
Alternatively, should no claims against the company be made then the assets can be distributed, free of any potential risk from future claimants who may later try to stake a claim to them.
Where groups of companies are concerned, there can often be some that are considered dormant – in the sense that they add no value to the business.
In some instances, knowledge of these companies can be sparse, leaving the current management with little or no knowledge of any potential liabilities.
As a result, risk management should occur whereby unwanted companies are removed from group structures, either via MVL or without the need to be formally wound up.
Insolvency practitioners in London and across the rest of the UK can advise on the necessary actions in these situations and can act as liquidators if necessary.
By Phil Smith