There are two types of voluntary liquidation: members voluntary liquidation (MVL) and creditors voluntary liquidation (CVL). A companies solvency determines which voluntary liquidation procedure is used for a voluntary winding up.
- A members voluntary liquidation may be used where the directors / owners believe the company is solvent (a solvent liquidation).
- Should a company be insolvent and unable to pay its debt, a creditors voluntary liquidation can be used.
A voluntary liquidation may start life as a members voluntary liquidation, but during voluntary liquidation change into a creditor voluntary liquidation, as insolvency becomes apparent.
Both types of voluntary liquidation are initiated by the company itself, passing a resolution at a meeting of the members (shareholders). A liquidator will realise assets and make a distribution to creditors.
In voluntary liquidations, the Gazette is used to advertise the liquidation. Once the liquidation is concluded a distribution to creditors may be available before the company is dissolved (unless the court defers its dissolution). Any surplus funds after the payment of creditors will be available to the members.
With a members voluntary liquidation a distribution to members is taxed as a capital distribution so a lower tax rate is applied; saving money on taxes.