What is an MVL signed indemnity?
A signed indemnity permits the distribution of company funds to shareholders before the MVL process concludes officially. This ensures shareholders need not wait for months while the MVL progresses through the necessary channels to access the funds held by the company. However, if a legitimate creditor emerges after distributions are made, the indemnity will be enforced, obliging shareholders to reimburse the money to settle the creditor’s claim.
What does ‘signed indemnity’ mean in the context of an MVL?
As a formal liquidation process, Members’ Voluntary Liquidation (MVL) requires time for completion. Typically, MVLs are wrapped up within 3-6 months of appointing the liquidator. However, in more intricate cases, it may extend beyond a year before the company is formally dissolved by Companies House.
The challenge here is that once a director opts to liquidate their solvent company, they’re often understandably eager to access the retained profits swiftly, rather than waiting several months to reap the rewards of their efforts. This is where a signed indemnity becomes significant.
What is the purpose of a signed indemnity?
Put plainly, a signed indemnity enables an early distribution of capital to shareholders before the MVL concludes officially and the company is struck off the Companies House register.
Once your appointed insolvency practitioner confirms the absence of outstanding liabilities, the execution of a deed of indemnity authorises them to distribute the company’s assets to shareholders. This typically includes a significant portion of the company’s assets, minus a small reserve to cover liquidation fees, associated disbursements, and a buffer amount.
What outcomes can result from agreeing to an indemnity?
The signed indemnity will only be activated if a valid creditor claim arises after company funds have been distributed to shareholders. Ideally, this scenario should not occur; directors are required to sign a declaration of solvency and disclose all outstanding creditors before initiating the MVL. Subsequently, the liquidator ensures these creditors are settled from company funds before distributing to shareholders.
However, in cases where previously undisclosed or contingent creditors emerge, the deed of indemnity offers financial safeguarding to the liquidator. By signing the deed of indemnity, shareholders commit to reimbursing funds if a creditor later presents a valid claim. This enables action to recover the full amount from shareholders for proper allocation to creditor claims.
Expert guidance is crucial
This underscores the importance of seeking sound advice from both your accountant and a licensed insolvency practitioner before embarking on the MVL process. It’s crucial to ensure absolute certainty regarding your company’s solvency and its ability to settle liabilities within 12 months of entering liquidation. Failure to do so can result in severe consequences.
Providing a false declaration of solvency constitutes perjury, while signing an indemnity could have significant implications on your personal financial standing if a substantial creditor claim emerges later. Collaborating with trusted professionals ensures that an MVL is suitable for your company and its financial circumstances.
If you’re contemplating an MVL, reach out to the specialists at Vanguard Insolvency. You can schedule a consultation with a licensed insolvency practitioner at any of our 100+ offices. This session will provide insight into your current situation and whether an MVL aligns with your company’s needs.
I am an insolvency professional with a distinguished career specialising in commercial insolvency, adeptly navigating Creditors Voluntary Liquidation, Company Voluntary Arrangements, and Company Administrations. With a comprehensive understanding of insolvency laws and an unwavering commitment to ethical practices.