Members' Voluntary Liquidation MVL

Understanding Solvent Company Liquidation - What is a Members' Voluntary Liquidation?

A Members’ Voluntary Liquidation (MVL) is a formal process which winds up the affairs of a solvent company, allowing directors and shareholders to extract the value of the business in both a tax-efficient and cost-effective manner.

A Members’ Voluntary Liquidation (MVL) is a formal liquidation process which enables shareholders to bring a solvent company to an end and unlock the proceeds cost-effectively. An MVL can either be used to bring an end to an entire company, or alternatively it can be implemented to close down an unwanted or non-performing subsidiary within a larger group of companies.

Often utilised by company directors and contractors approaching retirement, moving into employment, or otherwise looking to embark on a new venture, MVLs represent a swift and orderly way of tying up the loose ends of a company before distributing the assets and cash value.

It must be stressed that an MVL is only suitable for solvent companies – that is those for whose assets outnumber their liabilities. If you believe your company is insolvent, or is at risk of insolvency, you will need to consider an alternative process such as a Creditors’ Voluntary Liquidation (CVL).

The role of a licensed insolvency practitioner

As a formal liquidation procedure, an MVL must be handled by a licensed insolvency practitioner. As the name suggests, an MVL is a voluntary process which means shareholders can appoint the liquidator of their choice and ensure the company’s affairs are brought to an end at a time which is practical and convenient on both a personal and a business level.

The liquidator is appointed at an extraordinary general meeting (EGM) providing 75% of shareholders grant their approval for this course of action. Following appointment, it is the liquidator’s role to realise the company assets and settle any outstanding creditor claims before distributing the remaining assets to shareholders.

A Statutory Declaration of Solvency must be sworn, attesting to the fact that the directors have conducted a full enquiry of the company’s affairs and believe that it is in a position repay its debts, with interest, within a 12-month period.

It is a criminal offense to sign a declaration of solvency when you are aware your company is in fact insolvent. It is vitally important that you are up front and honest in your discussions with your insolvency practitioner; if it is decided that an MVL is not appropriate, they will be able to advise you on alternative routes should you still wish to close your company.

Alternatives to an MVL

Striking off a company – a process sometimes known as dissolving – is an informal way of closing down a solvent company which is no longer required and is an alternative to the MVL process. The process is relatively straightforward – so long as no objections to the strike off application are received – and it is also a cheaper option than an MVL.

However, strike off is not right for every company. If you have in excess of £25,000 to distribute, it is likely that an MVL will be a more cost-effective way of extracting these funds thanks to how distributions are treated when tax is levied.

Why choose an MVL for your company?

One of the major benefits an MVL has over company strike off is that an MVL allows for distributions to be made as capital rather than income. This means that released funds are subject to Capital Gains Tax (CGT) rather than Income Tax, significantly lowering the tax burden and thereby increasing returns to shareholders.

In many cases, directors can also take advantage of Business Asset Disposal Relief (BADR), formerly known as Entrepreneurs’ Relief – a hugely beneficial tax relief scheme which cuts the effective rate of CGT down to just 10% (subject to an individual lifetime limit of £1m). For many companies, a solvent liquidation is the most appropriate way of releasing funds while minimising the associated tax liability.

Using an MVL as part of your exit strategy

If you are considering closing down your limited company, now or in the near future, it is wise to contact an insolvency practitioner at the earliest available opportunity. Devising an appropriate exit plan ahead of time gives you a clear route forward, allowing you to plan your next move backed up by a solid strategy.

Taking advice in advance means you will have a liquidator lined up and ready to go when the time is right giving you the time to ensure that your company is in an optimal position with all necessary information being readily available when the MVL process begins. Ensuring your company’s liabilities are settled and your accounts are up to date will help speed the process up considerably as well as keeping the insolvency fees to a minimum.

How Begbies Traynor can help

With over 70 licensed insolvency practitioners working across our nationwide network of offices, Begbies Traynor can provide you and your company with the help and support it needs no matter where in the country you are based. Contact our expert team to arrange a free and confidential consultation to discuss your company and future plans.