Looking for Solvent Members’ Voluntary Liquidation Advice?
A Members’ Voluntary Liquidation (MVL) is a formal process which allows solvent companies to formally cease to exist, and extract the proceeds of the business in a tax efficient manner.
In most cases, an MVL is the best way for a shareholder to extract money out of a company without incurring personal tax liabilities. It can also be used as a tool to carry out the reconstruction of the assets or trade of a company.
MVL Advice for Business Owners
An MVL is the process by which a solvent limited company can be wound up. Whilst it applies only to solvent companies, the procedure is still governed by the Insolvency Act 1986 and associated Rules.
A solvent company is one which has more assets than liabilities, and is therefore in a position to pay off all its current and future taxes and creditors, and meet all of its contractual obligations.
A member is a shareholder of a company. Members have a say on the likes of business management, and are classed as part of the company. Members must be in agreement with any formal insolvency process, including an MVL, before it can go ahead.
Why use an MVL?
There are various reasons why members decide to liquidate a solvent company. It may be because the owners are looking to retire and have no one to pass the business on to. Sometimes it’s because the owners want to start afresh with a new venture. Others may feel that the business has run its course, or it might be it was set up only to fulfil a particular contract, which has now completed.
What are the benefits of an MVL?
An MVL is considered favourable for winding up a solvent company because of its taxation benefits. In some cases, members may be eligible for Business Asset Disposal Relief (BADR), formerly known as Entrepreneur’s Relief. This can, depending on certain criteria being met, reduce the rate of Capital Gains Tax from the highest rate of 20% down to 10% on profits up to £1 million.
When a company has cash or assets in reserve totalling more than £25,000, it is usually more tax efficient to use an MVL to wind the company up.
The purpose of an MVL is to distribute the assets of a wound-up company to the shareholders as capital, rather than dividend income which would be taxable up to the highest rate, depending on other taxable income.
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How does an MVL work?
Involved in a solvent Members’ Voluntary Liquidation are the members of the company, and their appointed Insolvency Practitioner. The company will ultimately be dissolved on completion of the MVL.
The MVL process requires the consent of 75% in value of the shareholders.
During the process, the Insolvency Practitioner will be responsible for settling outstanding debts and any legal disputes. They will also pay any creditors via profits and the sale of assets. All remaining funds will be distributed to the members of the company, providing they own 5% or more of the company’s shareholding.
Such distributions are classed as ‘chargeable events’ for Capital Gains Tax purposes, and must be listed on the individual shareholder’s Self-Assessment tax return for the appropriate tax year. It may be that capital distributions fall across more than one tax year.
The Insolvency Practitioner, acting as liquidator, is responsible for making sure that capital distributions are made in a timely manner. They must also obtain tax clearance for the company from HMRC. Once this is received, the liquidation will be complete and the company will be dissolved three months after the liquidator ceases to act.
How can Insolvency Online help you with Members’ Voluntary Liquidation advice?
Insolvency Online is a respected firm of corporate recovery specialists and licensed insolvency practitioners.
When acting as a company’s appointed liquidator, we ensure that capital distributions are made to shareholders in a timely and efficient manner.
Thanks to our streamlined processes and long term experience, in most cases, a significant cash distribution is made to members within 24 hours of us being appointed.
We also liaise closely with the company’s accountants throughout the process, ensuring all outstanding Corporate Tax returns are submitted by the relevant deadlines. Another role way play, one which is very important, is obtaining clearance from HMRC.
Nowadays, the whole liquidation process tends to be done by exchanges of emails and telephone conversations. Nevertheless, we are happy to meet with directors and shareholders at our offices, or at a location convenient for both parties. Dealing with other people’s money properly is very important to us. We do not cut corners and, although you may see some very low quotes for this type of work on the internet, we will always be competitive and transparent in our charging regime.
Finally, it is important to note that Insolvency Online is not a specialist tax adviser. We therefore recommend that you obtain tailored advice from your own tax specialists ahead of us acting for you in your MVL.
Our financial recovery and insolvency services for businesses and individuals
Insolvency Online offers a solution-finding approach to business rescue, personal financial challenges, and financial restructuring and recovery. We also help solvent business owners seeking to make use of Business Asset Disposal Relief. If we can assist you in any way, please do not hesitate to get in touch.
Frequently Asked Questions
What is the difference between a Creditors’ Voluntary Liquidation (CVL) and a Members’ Voluntary Liquidation (MVL)?
The key difference between a CVL and an MVL is that a CVL is a way of winding up insolvent companies, and an MVL is for solvent companies.
Creditors’ Voluntary Liquidation is not a compulsory liquidation, instead it involves the directors of an insolvent company volunteering to bring their business to an end and wind up the company. This process is usually used for unprofitable companies that are deemed insolvent, i.e. unable to settle their debts when they become due, or with a liability value that is greater than the total of its assets.
A Members’ Voluntary Liquidation is different because it only applies to companies which can prove themselves as solvent and that wish to cease trading for reasons other than financial difficulty.
In an MVL, all or most of the shareholders must make a statutory declaration, known as a Declaration of Solvency, that the company is able to pay its debts in full within 12 months of the start of the liquidation process. It is essential that all liabilities are identified at the point of signing the declaration, including any contingent liabilities or guarantees. Penalties apply for knowingly making a false declaration.
The company’s books and records must be held by the directors and can only be destroyed 12 months after the company has been dissolved. The Liquidator will hold its papers for a period of six years after dissolution.