MVL - Liquidators Bond Question

[Cautious Newbie]

Hi there,

I've had a search on the forum and can’t find a definitive answer to my query, so can I ask the consensus of the board:

I’ve recently moved into permanent employment after a number of years contracting.

In order to get the 25k+ cash out of my company in a tax efficient manner, I’m planning to use the MVL / ER route to close it down.

I’ve been in contact with an IP recommended to me by my accountants to discuss how they handle this process. The IP are registered with the Insolvencies Practitioners Association and R3.

One point of concern for me was the process by which my company’s funds would be protected by a bond.

The IP have said that they can only be appointed as the Insolvency Practitioners once my company’s funds have been transferred to their bank account. The bond will then be issued to protect the funds shortly afterwards. They said that, whilst they understand my concern, that this is common practice.

Obviously, this raises a concern as there will be a period when my company’s funds are unprotected by a bond.

Can anyone shed any light as to whether this is in fact correct and common practice or not?

Thanks in advance.

[northernladuk]

A 10 second search on google found many MVL companies that cover bonds.

FAQs | Frequently Asked Questions | MVL Online(R)

What are disbursements in an MVL process?

What are the Disbursements in an MVL? | Clarke Bell

and so on and so on...

In all of them they mention the bond is there to protect it.

I'm sure if you do a few more searches you could find out why it has to be like that..

Does the website of your people not mention them anywhere?

[Maslins]

The IP have said that they can only be appointed as the Insolvency Practitioners once my company’s funds have been transferred to their bank account. The bond will then be issued to protect the funds shortly afterwards. They said that, whilst they understand my concern, that this is common practice.

Have you maybe misunderstood something here?

My expectation would be the liquidator would only have access to your company's funds after they're legally appointed. The bond applies from the date they're appointed. In practice the specific payment for bonding on your case would only be paid in arrears, but the insurance would still cover you from appointment date.

Ie normal order of things:
1) liquidator appointed, insurance is in place,
2) liquidator gets control of your company's funds,
3) liquidator pays for bond from your company's funds.

Having said that, possibly you haven't misunderstood at all. I know some liquidators promise funds on day of appointment, or within 7 days. From my experience that simply isn't possible by doing things the normal route, due to all the steps required, and reliance on action from your company's bank. I would guess they get around this by asking you to instigate the transfer before they're legally appointed. If that is the case, then from a very practical perspective it may well work out ok, but to my mind the risk is large. You're voluntarily sending all your company's funds to a third party bank account controlled by someone who (at that point) has no legal relationship or responsibility to your company. That is not normal liquidation procedure, but I appreciate normal liquidation procedure can be painfully slow (we tend to suggest people expect 4-6 weeks between appointment and first distribution).

[Cautious Newbie]

Have you maybe misunderstood something here?

Having said that, possibly you haven't misunderstood at all. I know some liquidators promise funds on day of appointment, or within 7 days. From my experience that simply isn't possible by doing things the normal route, due to all the steps required, and reliance on action from your company's bank. I would guess they get around this by asking you to instigate the transfer before they're legally appointed. If that is the case, then from a very practical perspective it may well work out ok, but to my mind the risk is large. You're voluntarily sending all your company's funds to a third party bank account controlled by someone who (at that point) has no legal relationship or responsibility to your company. That is not normal liquidation procedure, but I appreciate normal liquidation procedure can be painfully slow (we tend to suggest people expect 4-6 weeks between appointment and first distribution).

Hi Maslins,

I’d researched the subject before posting on the forum so, what you describe as the normal order of things was what I was expecting to hear from them, hence my question.

They said that they can distribute 100% of the funds within a couple of days. The only delay they could foresee would be that my bank may not allow a lump sum transfer.

I concur with your assessment and believe they’re circumventing the normal route in order to expedite the process.

I’ll get in touch with them and request clarification.

Thanks for the insight and feedback.

[Maslins]

I concur with your assessment and believe they’re circumventing the normal route in order to expedite the process.

Then proceed with caution, as be aware if something goes wrong (accident or fraud) you'll have a big problem.