This article was first published in the October 2025 issue of Corporate Rescue and Insolvency journal published by Lexis Nexis.
MVLs as a means of facilitating criminality
At a recent University of Leeds event, the Insolvency Service reported its concerns about members’ voluntary liquidations (MVLs) being used by criminals to legitimise their funds. There are concerns that directors associated with criminality or money laundering could omit and/or falsify documentation presented to insolvency practitioners (IPs) when proposing an MVL. As there is no requirement in an MVL to carry out investigation work, a company’s previous activities and transactions – and those of its directors – are very likely to avoid scrutiny.
Key points
- ICAEW’s Quality Assurance Department (QAD) is responsible for carrying out all ICAEW’s monitoring activities, including its insolvency monitoring work. Each autumn, the insolvency team in QAD host a roadshow to update IPs and their staff on the current hot topics for the Recognised Professional Bodies (RPBs) and issues from recent ICAEW monitoring visits.
- This is the first in a series of articles by ICAEW, expanding on the issues raised at the 2025 QAD roadshow.
- One emerging risk for IPs is that of members’ voluntary liquidations (MVLs), and the risk they can pose if IPs don’t properly undertake their anti-money laundering (AML) checks and don’t have an inquiring mind to ask the right questions.
The core concern is that criminals may seek to use the MVL process strategically to avoid scrutiny and investigations being conducted that might identify criminality. As a result, it is critical that IPs are alive to the risks of becoming a professional enabler, whether deliberately or recklessly. IPs who regularly undertake MVLs may not necessarily consider these types of appointment to be high risk, but that mindset creates a real risk of being complicit. IPs can look to avoid or minimise this risk by ensuring they have processes in place to complete sufficient customer due diligence (CDD) and AML checks before accepting an appointment.
The sort of questions IPs should be asking include:
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Does the company have a complex ownership structure?
If so, do they fully understand it? Have they got enough information to fully understand the reason for the complexity and who is ultimately in control? -
Have AML procedures identified all potential red flag issues?
While not mandated, completion of open source checks – for example, through Google, CoPilot or ChatGPT – can provide useful information (and possible red flags) that might not otherwise be identified. -
Has the client or the individual who has referred the job been open and transparent, or are they being unnecessarily secretive or unhelpful?
If that is the case, the IP should stand back and question why the client is acting as they are and whether they have been given enough information to satisfy their concerns. It is well known that a common tactic used by scammers is to create a feeling of haste and the need to act on something quickly. This can be the case when a criminal is looking to instigate an MVL. There is a risk that pressuring an IP to act quickly, or threatening to engage another IP if compliance matters are not speeded up, may mean IPs end up circumventing usual processes and risking liability. -
Does it make sense that the client wishes to engage them?
For example, if the client is based in a different region, why are they seeking advice from someone some distance away? Is there something that a local IP might be aware of from local knowledge or the local press? Similarly, where the IP is in a small practice and the MVL is sizable with considerable assets, does it make sense that the company is instructing them? Have they done this deliberately in the hope that the IP may not have the same systems and controls as a larger practice, or that they will be so pleased to get such a large appointment that they may not ask the right questions?
IPs therefore need to make sure they are applying a level of professional scepticism and asking the right questions. They should not rely solely on the information provided by the work referrer or the company.
An inquiring mind
From 1 October 2025, changes to the RPBs’ ethical codes introduce the concept of the “inquiring mind” when applying the conceptual framework in the code of ethics. The inquiring mind requires the need to consider the source, relevance, and sufficiency of information obtained. In doing so IPs should take into account the nature, scope, and outputs of the professional activity being undertaken. They should also be open and alert to a need for further investigation or other action.
This inquiring mind should prove useful when considering the points above and when looking at potential new MVLs.
For example, IPs should consider whether the asset position of the company can be explained, comparing it with previous years’ accounts. Such comparison should not be limited to the previous year’s accounts, as any falsification of accounts could have been planned for some time. IPs need to understand where any cash balances or assets have derived from and should seek bank statements or other documentation to support explanations offered. In doing so, IPs must bear in mind that criminals seeking to take advantage of the MVL process may be manipulating and falsifying documents to persuade an IP that the position is as stated. As a regulator, we expect IPs to review more than simply the final pre-appointment bank statement.
It may sound obvious, but IPs should consider whether the company is actually solvent or whether funds have been injected into the company to allow the directors to avoid an insolvency process involving investigation into their conduct and the company’s previous activities.
On a practical level, IPs need to ensure that they are taking control of the assets on appointment. Over the years, the ICAEW has seen a small number of IPs not actually doing so and instead instructing directors to pay shareholders a distribution before remitting the balance of funds to the IP. We do not believe that such conduct is appropriate and as a regulator we expect IPs to obtain the funds held by the company on their appointment and make the distribution themselves.
Economic risks
Before making any payment, IPs must understand who they are paying. If all shareholders were not included in the initial AML customer due diligence carried out, we would expect them to carry out appropriate CDD before making any distributions. IPs need to be satisfied that they know who the recipient of funds is and that they are not, for example, sanctioned individuals.
We have seen examples of IPs advertising a fixed price MVL for a relatively low fee. Arguably, it is those IPs who may be at a higher risk of criminal complicity, as asking the questions outlined above and ensuring they are comfortable with the answers will cost time and money.
The Insolvency Service’s recently published enforcement strategy for 2026 to 2031 focuses on expanding its role in tackling economic crime facilitated through companies. Moreover, during the summer, the Treasury published the 2025 National Risk Assessment of money laundering and terrorist financing. While this is relatively silent on insolvency risk, the Accountancy AML Supervisors Group’s September 2025 risk outlook flags the risk that criminals may mask the audit trail of money laundered through a company that has gone into liquidation. It notes that by providing insolvency services that mask the funds and distance them from their source, the accountant may be involved in “layering” of the illicit funds into the legitimate economy. As well as this, it highlights that MVLs (in particular) may be exploited by criminals as a tool to liquidate the assets owing to the less stringent processes and investigations required.
Conclusion
MVLs – and the risks they present for potential abuse – are likely to remain a focus for regulators and the Insolvency Service for some time.
All IPs taking on MVLs need to be vigilant. Those IPs who take only the occasional appointment may not be alive to the risks in this area. Likewise, those IPs for whom MVLs are their’ bread and butter’ work may not see MVLs as high risk because they are dealing with them on a daily basis. However, in the current economic climate, it is essential that all IPs view MVLs as potentially high risk.
IPs must ensure that they and their teams are fully trained on identifying potential red flags and that their processes are sufficient to ensure that they fully understand complex structures and the source of assets. Where a client is being unusually difficult or pushy, or where the IP simply cannot get comfortable with the company’s history, structure, or the source of its assets, the safest route may be to reject the appointment and avoid problems further down the line.
Useful links
Note from ICAEW
Find out more about our roadshows and other learning opportunities by visiting our Restructuring and Insolvency Community’s webinars and recordings page.
