Planning a members’ voluntary liquidation? Learn how to follow a lawful redundancy process, meet employee obligations and avoid risk during a solvent winding up.

How to Follow a Redundancy Process in a Solvent Winding Up (MVL)? A Practical Legal Guide

Jonathan Lea December 19, 2025

A members’ voluntary liquidation (MVL) is often the most tax-efficient and orderly way to close a solvent company. Directors who have fulfilled their statutory duties and who no longer need the company for trading will typically view an MVL as a clean exit route with clear timelines and predictable costs.

However, one area that frequently causes confusion is the treatment of employees. Even where a company is solvent and planning a controlled wind-down, the question remains: must the business still follow a redundancy process?

This guide explains the legal position, the practical steps employers should take, and the risks that arise if redundancies are not handled correctly.

Are redundancies required during a solvent winding up?

The short answer is yes. UK employment law applies fully to companies entering an MVL. The closure of the business itself constitutes a redundancy situation because the company no longer requires employees to carry out work of the kind they were engaged to perform.

A solvent winding up does not create any exemption from redundancy obligations. Employees retain their statutory rights, and the company must meet all payments directly from its assets, as the Redundancy Payments Service does not step in for solvent companies.

Directors should therefore ensure that redundancy is handled fairly, lawfully and in a way that will stand up to scrutiny by both employees and the appointed liquidator.

Consultation obligations still apply

Even though the business is closing, the employer must follow a reasonable redundancy consultation process. The fact that the outcome is inevitable does not remove the need for individual consultation.

A fair process will usually involve:

Explaining the company’s decision to cease trading and enter an MVL.
This should be communicated clearly to employees, ideally in person, with confirmation in writing. Employees should be given the opportunity to ask questions and understand the reasons behind the proposed closure.
Providing employees with an opportunity to comment or make representations.
While no alternative roles may exist, employees are entitled to engage with the process. Employers must be able to demonstrate that they listened to anything raised and considered it, even if it could not change the outcome.
Following collective consultation where 20 or more redundancies are proposed.
If the company intends to dismiss 20 or more employees at the same establishment within 90 days, it must consult collectively for a minimum of 30 days (or 45 days if 100+ redundancies). The employer must also file an HR1 form with the Insolvency Service. Failure to do so is a criminal offence and can result in substantial protective awards for employees.

The redundancy process can be proportionate to the size and nature of the business, but it cannot be ignored entirely.

Notice, redundancy payments and accrued entitlements

Employees remain entitled to all statutory and contractual payments, including:

Statutory redundancy pay, where the employee has at least two years’ continuous service.
This must be funded by the company directly from its assets. Calculations should be based on the employee’s age, length of service and weekly pay (subject to the statutory cap).
Notice pay or payment in lieu of notice (PILON).
Directors should check contracts carefully to determine whether PILON is permitted and how it should be calculated. Mistakes in this area are common and may lead to breach-of-contract claims or tax complications.
Accrued but unused holiday pay up to the termination date.
This is typically straightforward to calculate but must be evidenced for the liquidator.
Outstanding wages or other contractual sums, including bonuses or commissions that have already been earned.
All such sums should be settled before or as part of the MVL process to ensure liabilities are finalised.

Failure to make correct payments can delay the liquidation, lead to employee claims and reduce the funds available for distribution to shareholders.

What if the business has already stopped trading?

In many MVLs, trading may have ceased prior to the formal liquidation process. Even in such cases, redundancy law usually still applies unless it was not reasonably practicable to follow a process.

This exception is narrowly interpreted. It typically applies only to insolvent companies facing sudden collapse, not to solvent companies that have time to plan. MVLs are incorporated, deliberate processes. Directors are therefore expected to manage redundancy responsibly before appointing a liquidator.

A failure to consult or to make correct payments may be seen as unreasonable decision-making and could lead to challenge by employees or scrutiny from the liquidator.

Directors’ duties during the pre-liquidation period

Before entering an MVL, directors continue to owe their usual duties under the Companies Act 2006, including the duty to act in the company’s best interests and to exercise reasonable care and skill.

Where redundancies are mishandled, the company may face claims that ultimately reduce members’ distributions. The liquidator will review decisions made prior to their appointment, and directors must be able to justify them.

Additionally, if the company is approaching a point where solvency is in question, duties may shift toward creditors. In an MVL context, this reinforces the importance of managing redundancy matters cleanly and professionally.

Practical steps for handling redundancies before an MVL

In most solvent wind-downs, the most efficient approach is to deal with employees before the MVL formally begins.

This usually involves:

Planning a clear timeline for consultation, notice periods and final payments so that all employee liabilities are crystallised before liquidation. This makes the MVL smoother and gives confidence that creditor and employee claims are fully identified.
Issuing redundancy notices and making PILON where appropriate to ensure termination dates align with the intended liquidation appointment. This avoids the complications of having employees still in place once the liquidator assumes control.
Preparing proper documentation, including consultation notes, redundancy letters and final payslips. The liquidator will expect to see evidence that all employment obligations have been complied with.

The more orderly the process, the easier the MVL becomes—and the faster shareholders can receive distributions.

Conclusion

A members’ voluntary liquidation does not remove or reduce the company’s employment law obligations. Redundancies must still be handled with proper consultation, correct payments and clear documentation.

By addressing these issues before the liquidator is appointed, directors can significantly reduce risk, avoid disputes and ensure the MVL proceeds efficiently.

How The Jonathan Lea Network can help

We regularly advise directors and shareholders preparing for a solvent liquidation, ensuring that redundancy and employment matters are handled lawfully and with minimal disruption. We can assist with:

Advising on the correct redundancy process
Preparing consultation documentation and notices
Calculating statutory and contractual entitlements
Liaising with insolvency practitioners to ensure compliance

We usually offer a no-cost, no-obligation 20-minute introductory call as a starting point or, in some cases, if you would just like some initial advice and guidance, we will instead offer a one-hour fixed fee appointment (charged from £250 plus VAT depending on the complexity of the issues and seniority of the fee earner).

Please email wewillhelp@jonathanlea.net providing us with any relevant information ensuring that any call we have is as productive as possible or call us on 01444 708640. After this call, we can then email you a scope of work, fee estimate (or fixed fee quote if possible), and confirmation of any other points or information mentioned on the call.

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This article is intended for general information only, applies to the law at the time of publication, is not specific to the facts of your case and is not intended to be a replacement for legal advice. It is recommended that specific professional advice is sought before relying on any of the information given. © Jonathan Lea Limited.