Members Voluntary Liquidation
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What is Members Voluntary Liquidation?
A Members Voluntary Liquidation (MVL) is for solvent companies that want to bring their business to a close. Putting a business into an MVL allows a company to extract proceeds in a tax-efficient and cost-effective way. It also allows the business to be wound down in a calm manner.
What will a Members Voluntary Liquidation do for your business?
Putting your business into a members’ voluntary liquidation will mean that the company closes at the end of the procedure. However, it does provide you with greater tax benefits.
The Members Voluntary Liquidation gives you the opportunity to extract the value of the business in the form of cash. You will also be rewarded with Capital Gains Tax instead of being charged Income Tax on the funds. This means you will save money on taxes.
A Members Voluntary Liquidation is not considered an insolvency procedure so, even though the winding-up petition is advertised in the Gazette, your business will not suffer with the same negative connotations that come with a Creditors Voluntary Liquidation (CVL).
What is the difference between an MVL and a CVL?
A CVL comes into fruition when an insolvent company enters into a voluntary liquidation. This is the opposite of an MVL.
The directors and/or shareholders of the company decide to close their business in both of these options, however, the proceeds of the liquidation go to creditors within a CVL. In an MVL, they go to the members.
What is the cost of a Members Voluntary Liquidation?
We will be able to quote you a fixed fee to liquidate your company through an Members Voluntary Liquidation method. Our assessment will be based on:
▪️ The value and complexity of held assets
▪️ How much is unpaid and how much needs to be given to creditors
▪️ How many shareholders can be paid out
Please get in touch, tell us of your situation, and we will be able to work out a fee with you.
Can you turn an MVL into a CVL?
The liquidator must ensure that the company remains solvent throughout an Members Voluntary Liquidation procedure. It’s possible that after the Members Voluntary Liquidation is advertised publicly, additional creditors may come forward and submit claims against the company, turning it into a Creditors Voluntary Liquidation.
Alternatively, the valuation of contingent liabilities may reveal that prospective debts will push the company into insolvency. Whatever the cause, if the company does become insolvent or is found to be insolvent by the liquidator, a creditors’ meeting will be held and the procedure could turn into a CVL.
The liquidator has to make sure that the company remains solvent throughout the Members Voluntary Liquidation process. It is possible that more creditors could come forward when they see that the MVL is being advertised in the Gazette. This can turn the MVL into a CVL.
A creditors meeting will be held if the company does end up going insolvent, or is found to be insolvent by a liquidator, and this could force the Members Voluntary Liquidation into a Creditors Voluntary Liquidation.
Fines and penalties can be brought into the equation if creditors of the company swear a false Declaration of Solvency to enter into an Members Voluntary Liquidation. This can include stopping people from acting as directors of a UK limited company for up to 15 years. If it is a case of international fraud, imprisonment could be a possibility for the perpetrator.
What is a solvent company?
A company can be regarded as a solvent when it is able to pay all liabilities in full, as well as statutory interest and any costs involved with the winding-up procedure, within 12 months from the Declaration of Solvency.
Why is an MVL tax efficient?
An Members Voluntary Liquidation provides better tax efficiency than other options, such as a strike off, because there is no requirement to pay income tax on distributions to shareholders. Taxes that are present in other solutions do not appear in the MVL because of the Extra Statutory Concessions Order (2012).
Why should I use an MVL instead of striking off?
Striking off can be beneficial for many companies, however, you might not want to strike off if you have a lot of money in your bank account. An Members Voluntary Liquidation provides ease of access to funds and also gives the opportunity for tax benefits.
If your business is sitting on funds of £25,000 or more, they shouldn’t really be entertaining a strike off solution.
Why would a company choose Solvent Liquidation?
A CVL can only be created under the assistance of a licensed Insolvency Practitioner (IP). An IP will be able to help you with good advice that you need to sort out your financial situation.
Generally, a Members Voluntary Liquidation is a tax-efficient process for shareholders of a company to realise their investment i.e. the company’s assets, via a capital distribution. Subject to meeting certain criteria, the shareholders may qualify for Entrepreneurs Relief, therefore their returns are subject to tax at a much lower rate than usual.
In most instances, the company will have stopped trading and all liabilities will have been settled, all or most physical assets will have been sold, with the company’s only asset, therefore, being made up of cash at bank. Should there be remaining assets to realise then they can be dealt with through the liquidation process.
What is the solvent liquidation process?
▪️ Ideally, the company will have ceased to trade and final accounts will have been prepared by the company’s accountant and signed off by the directors. Additionally, it is beneficial in most cases for all tax (and other) liabilities to have been settled, otherwise, interest at 8% per year begins to accrue from the date of liquidation.
▪️ A formal Declaration of Solvency must be produced. This document will provide details on the company’s assets and liabilities, which will prove that the company is both solvent and has the ability to repay its creditors, with statutory interest, in a maximum of 12 months. The company’s directors must swear the documents in front of a solicitor, confirming they believe its content to be true.
▪️ A board meeting is held at which the decision is made to recommend to the shareholders that the company be placed into a solvent liquidation, the directors will sign off all relevant notices required to commence the Members Voluntary Liquidation procedure.
▪️ A General Meeting of shareholders is held at which shareholders will resolve to place the company into a solvent liquidation, so long as 75% of shareholders are in favor, as well as other resolutions relating to the distribution of the company’s assets.
▪️ It is the role of the appointed liquidator to settle any outstanding debts with creditors (if any) before distributing the company’s assets amongst the shareholders.
▪️ The liquidator must obtain clearance from government departments to confirm that they have no objection to the liquidation being completed.
▪️ Following the filing of the liquidator’s final report at Companies House, the company is removed from the register three months later and is dissolved.
What is the difference between a CVA and an MVL?
A Company Voluntary Arrangement (CVA) is designed to prioritise a profitable future for a business in financial difficulty. A business will still be allowed to trade in a CVA.
An Members Voluntary Liquidation is a tax-efficient distribution of a business’ assets to its members. This is usually when trading has ceased, or if the company becomes invalid in some capacity.
Can you put an insolvent company into an MVL?
An Members Voluntary Liquidation is only appropriate for solvent companies. A company can only go down this route if it can legally pay off its suppliers and meet its financial obligations, including tax and potential liabilities.
If a company is placed into an Members Voluntary Liquidation while it is insolvent, the directors responsible for that decision will be seriously investigated from the Insolvency Service. The process would then shift to a Creditors’ Voluntary Liquidation (CVL).
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Are you eligible to claim Director Redundancy?
As a Limited Company Director you may be entitled to claim Director Redundancy – Average UK claim is £9,000*.
Members Voluntary Liquidation FAQs
Do I have to pay expenses in an MVL?
Yes. Expenses are a mandatory part of an MVL. A company has to be advertised in the London gazette in order to allow for uncontacted creditors to see the notice and put their claims forward.
How long does it take for shareholders to get paid in an MVL?
Shareholders should have their funds distributed within seven working days of receiving cash from the company’s bank. Consent will have to have been exchanged and engagement paperwork will also need to have been signed.
What is the difference between a CVL and an MVL?
A CVL is a voluntary liquidation process that is there to bring an end to an insolvent company. It is worth noting, though, that liquidation is not only for insolvent businesses.
A Members Voluntary Liquidation (MVL) is for solvent companies that want to bring their business to a close. Putting a business into an MCL allows a company to extract proceeds in a tax-efficient and cost-effective way. It also allows the business to be wound down in a calm manner.
You must sign a declaration of solvency that demonstrates that the company is solvent and able to pay all of its outstanding creditors, if you want to go into an MVL solution. Lying in order to sign a declaration of insolvency is a very serious matter and you can get into big trouble.
With that in mind, it’s imperative that you talk to a fully licensed insolvency practitioner before you jump into any liquidation solution. They will be able to offer the best advice for you and your company, ensuring that you don’t make any life-changing mistakes when trying to find a solution for your situation.
Can I use an MVL again?
Your company can apply for an MVL if it is eligible again after using it in the past. At the same time, an MVL is not supposed to be used to exploit its tax efficiency benefits.
Please do talk to us to before diving into another MVL!
What happens to employees in an MVL?
Employees will be made redundant when a company liquidates. Because your company is solvent, it may have the funds available to cover redundancy payments. However, if this is not the case, employees will be eligible to claim from the Redundancy Payments Service.