Members' Voluntary Liquidations (MVLs) are designed for solvent companies, offering a tax-efficient exit for shareholders. However, the legal risks faced by liquidators are often underappreciated. Many assume that because the company can pay its debts, the process is low-risk. This is a misconception. If a liability arises after distributions have been made — particularly from Revenue — the consequences can be severe, including personal exposure for the liquidator and clawbacks from shareholders.

Liquidator Duties in an MVL

While MVLs are shareholder-driven, once appointed, the liquidator assumes statutory duties that mirror those in insolvent liquidations in key respects. The liquidator must:

Act in the best interests of all stakeholders
Preserve company assets and settle all liabilities before distribution
Take reasonable steps to investigate potential claims or contingencies

These duties are not discharged merely because the company appeared solvent at the outset.

Section 612 – Misfeasance by the Liquidator

Under Section 612 of the Companies Act 2014, the court may order a liquidator (or other officer) to repay, restore, or compensate the company for any money or property misapplied or retained, or for any breach of fiduciary or other duty, including misfeasance or negligence.

While the threshold for liability is high — typically requiring evidence of gross negligence or recklessness — this section acts as a serious backstop. It applies where a liquidator fails to:

Reserve funds for known or foreseeable liabilities
Investigate red flags
Act prudently in the face of uncertainty

A notable example of the risks involved can be seen in Re Lo-Line Motors Ltd [1988] BCLC 698. In that case, directors (acting as de facto liquidators) distributed company funds without adequately reserving for outstanding liabilities. The court held them personally liable to repay those distributions. Although an English decision, the principle has been influential in Irish insolvency practice, underscoring the duty to safeguard creditor interests even in seemingly solvent circumstances.

Recovery of Distributions from Shareholders

Where a shareholder receives a distribution during a Members' Voluntary Liquidation and a liability arises thereafter that leaves creditors unpaid, the liquidator may in some cases be required to seek repayment of that distribution. This is not necessarily governed by a single statutory provision such as Section 604, which in fact relates to unfair preferences in favour of creditors.

Instead, recovery may depend on equitable remedies, fiduciary principles, or broader powers associated with misfeasance under Section 612. In some scenarios, if a distribution is found to have been made without adequate provision for liabilities, the liquidator may be required to take action to recover those funds.

This puts liquidators in the uncomfortable position of pursuing individuals they have just paid out, and failure to act may itself give rise to criticism or liability.

Section 586 – Converting MVL to CVL

Section 586 of the Companies Act 2014 provides that if, at any point, the liquidator forms the opinion that the company will not be able to pay its debts in full, the Members' Voluntary Liquidation (MVL) must be converted into a Creditors’ Voluntary Liquidation (CVL).

This requires convening a creditors’ meeting and preparing a statement of affairs. It is a key statutory safeguard — both for the integrity of the process and for the liquidator's personal protection. Failure to convert in the face of doubt can give rise to liability under Sections 612 or 604.

Shareholder Indemnities as Risk Management

To manage uncertainty, it is increasingly common to request that shareholders sign a deed of indemnity. This agreement typically provides that, if any undisclosed liabilities emerge post-distribution, the shareholder will:

Repay all or part of the distribution
Do so within a fixed timeframe (e.g. 14 days of demand)
Be liable for costs incurred by the liquidator

The indemnity can be:

Capped to the value of the distribution received
Time-limited, often 24 months post-final meeting

While not a full substitute for prudence, it is a vital protection mechanism.

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Documentation and Governance

What saves a liquidator in these scenarios is often not foresight but documentation. Keep a paper trail:

Minutes of all decisions
Emails to Revenue seeking clarification
Internal memos on reserve policy
CRO filings noting contingent risks

This record can be the difference between defending a claim and admitting liability.

Conclusion

MVLs can be deceptively dangerous for liquidators who proceed without caution. The veneer of solvency does not eliminate the duty to act responsibly, prudently, and with foresight. Section 612 and related equitable principles create real consequences for missteps, while Section 586 offers a statutory escape route — if used promptly.

For liquidators, the key lesson is clear: assume nothing, confirm everything, and document all of it.

Hidden Legal Risks for Liquidators in MVLs