A Members Voluntary Liquidation is the liquidation of a company that is solvent. A company is solvent by definition if it has assets sufficient enough to settle all liabilities in full, plus statutory interest within a given period of less than 12 months.

The director’s decision to instigate an MVL is generally because the company has no further purpose and is a tax-efficient way of distributing its assets and profits to the shareholders.

Are you looking for a fast, low-cost, and tax-efficient way to close your company? If so, then a Members Voluntary Liquidation (MVL) may be the right solution.

Business Asset Disposal Relief, formerly Entrepreneurs’ Relief

Entrepreneurs’ Relief is known as Business Asset Disposal Relief as of 6 April 2020. Companies with more than £25,000 of cash to release may qualify for Entrepreneurs’ Relief if criteria are met. The assets are sold, and the proceeds used to pay creditors in full and the liquidator’s fees. Any remaining monies would be distributed to shareholders.

See more on Entrepreneurs’ Relief

Why use a Members Voluntary Liquidation?

There are a number of reasons why shareholders may want to place a solvent company into liquidation:

• Retirement of the directors, for example, the closure of a family business or the desire to transfer funds into a personal estate.
• A change in circumstances e.g. a desire to move out of the country or no longer wanting the responsibility of running a business.
• The directors or shareholders want to close the company and take money out in the most tax-efficient manner.
• The reorganisation of a group of companies after a merger for example or if there is a need to increase efficiency. More than one Members Voluntary Liquidation may be required, but your insolvency practitioner can advise on this.
• Changes in directors circumstances, they may no longer want the responsibility of running a business and may even want to move out of the country.
• Finalising all tax affairs for single or group of companies. The reorganisation of a company’s merger may help increase efficiency. There may need to be more than one MVL required.

If your company is solvent, a Members Voluntary Liquidation can be used to distribute cash, liquid or physical assets between the shareholders via the MVL and the director’s obligations are removed.

What are the advantages?

A Members Voluntary Liquidation process has many benefits to both directors, shareholders and creditors.

• Tax advantages

  An MVL can avoid the imposition of income tax, which would otherwise arise if a company applied for dissolution, where the total assets exceed £25,000.

  • Capital gains
    The distributions to shareholders from a Members Voluntary Liquidation, enables capital gains tax at the rate of 20%.
  • Business Asset Disposal Relief (BADR)
    In many cases, shareholders benefiting from distributions out of the MVL process will be able claim a further discounted rate of Capital Gains Tax through BADR, which is currently set at 10%.

  Find out more about Business Asset Disposal Relief BADR

  Tax Advice:Wilson Field does not give tax advice. As individuals and companies can have very different tax circumstances, we always recommend that you take advice from your accountant or tax specialist about Business Asset Disposal Relief before making any decisions about closing your company using the MVL process.
• Formal liquidation procedure

  An MVL is a formal liquidation which must be carried out by a licensed insolvency practitioner (IP). An IP will ensure that all legal procedures are properly followed, ensuring peace of mind for directors and shareholders.

• Company is formally closed and wound-up

  Directors can have peace of mind that the company has gone through a formal liquidation procedure, with the company wound-up and closed.

• Creditors fully paid out

  As the company is solvent, an MVL should ensure that all creditors related to the company are paid out in full.

• Asset distribution

  An MVL ensures a structured process for the distribution of assets meaning a smooth transitions of assets to shareholders, which will help avoid disputes and disagreements.

• Quick cash release

  Subject to shareholders signing their indemnity, at Wilson Field, we don’t have to wait for HMRC to grant us clearance to release the funds from the MVL process.

• Fast distribution

  We will aim to distribute funds to you within 7 days of receipt of your cash from the company’s bank.

What are the disadvantages?

A Members Voluntary Liquidation is generally considered a positive procedure, allowing a company to be formally closed in the most tax efficient manner. However, it is important to understand the implications, including but not limited to:

• Dissolution can be more straightforward

  As an alternative to an MVL, a company can apply to be struck off from the register at Companies house. However, this is usually for companies that have little or no assets and have stopped trading.

  • A dissolution can be cheaper than an MVL, but it does not provide the same tax benefits.
  • The company can be dissolved and formally wound-up quicker.
• Targeted Anti-Avoidance Rule (TAAR)

  TAAR is a government scheme, designed to prevent individuals from exploiting the tax benefits included in a MVL, in a way that goes against the process’ intent. Shareholders and directors cannot close a company through an MVL whilst enjoying the tax benefits and then proceed to set up a new company, operating the same or similar business. This practice is often referred to as ‘Phoenixism’. There are set conditions that apply which allow TAAR to be enforced:

  • A shareholder receives a distribution in respect of shares in an MVL.
  • Within a period of 2 years from the date of distribution, the shareholders continue to be involved in a similar trade or industry.
  • The circumstance surrounding the MVL have the main purpose, or one of the main purposes, of obtaining a tax advantage.

  Find out more about TAAR

Pricing structure

Our costing for a Members Voluntary Liquidation has a pricing structure which is based on a three-tiered system, designed to suit the individual requirements of each company. The cost is split into two different sections, the liquidator fees, which involves all the work and duties carried out by our insolvency practitioner. The secondary part involved in the cost is the expenses, which are a mandatory part of the MVL process.

£1,995 MVL + VAT & expenses

This is for a straightforward MVL where the company has no outstanding liabilities, and all assets have been turned into cash.

£3,995 MVL + VAT & expenses

If the liquidation of your company is more complex and there are outstanding liabilities to be settled, or assets to be distributed in specie; our £3,995 MVL option would be the most appropriate.

£4,495 MVL + VAT & expenses

If you are due any HMRC refunds the fee for an MVL would be £4,495.

Bespoke MVL + VAT & expenses

With our bespoke MVL, we will carry out the valuation and sale of any physical assets, and deal with any disputed creditor claims against your company. We also offer a free face-to-face meeting with one of our consultants, as well as providing constant support and guidance throughout the process.

Full MVL pricing structure

The process

Our MVL procedure.

Engagement

Upon receipt of your enquiry we will issue an engagement pack.

 

Although the process relates to solvent companies, it must be managed by a licensed insolvency practitioner.

Discuss timescales & Declaration of Solvency

Once returned we will contact you to discuss the completion of the Declaration of Solvency. This is a principal requirement for any company wanting to propose an MVL. The declaration states amongst other things that enquiries have been made into the company’s financial affairs, and the directors are of the opinion that the company will be able to repay its debts plus statutory interest within twelve months or less.

Board Meeting

Any director making a Declaration of Solvency without having reasonable grounds for the opinion that the company will be able to pay its debts in full, together with interest at the official rate, within 12 months is liable to imprisonment or a fine, or both. You will need to attend a local solicitor’s office to have this sworn (they may charge for this, typically £20). When sworn return this to us. This document must be made up to a date no more than 5 weeks before the company enters liquidation and must be made by the directors (or by a majority where there are more than 2), and they must hold a meeting to pass a resolution to officially begin the winding up process.

Provision of information

You will be required to provide copies of all accounts and returns that should be prepared up to the date of liquidation for submission to HMRC, including the submission of final VAT, PAYE and any subcontractor returns, together with evidence of final payments made prior to the appointment of the liquidators.

Preparation

We will prepare all of the statutory minutes, notices and resolutions. We will also check your company’s memorandum and articles to ensure compliance with notice periods and voting rights.

Following appointment

Once appointed we will file the Declaration of Solvency and resolutions confirming the appointment of the liquidators at Companies House. We will also advertise the appointment in the London Gazette and advertise for creditors to submit claims. Even though there will be no creditors it is best practice still to advertise.

Write to your bank

We will request the company’s cash at bank and make a distribution within 7 days of receipt of the cash in accordance with the company’s memorandum and articles.

Distribute cash

The time frame of this will depend wholly upon when we receive money from your bank. All banks are different in terms of how quickly they will release the funds to the liquidators. We will use our best endeavours to secure the release of the monies as soon as possible but please note that the bank’s own framework may mean that funds are not released as quickly as you would like. If your company is/has been VAT registered, we will reclaim the VAT on the costs incurred and make a second and final distribution towards the end of the liquidation.

Indemnity

We will also require a written indemnity as part of the engagement letter to provide the liquidator with sufficient security should any claims arise. As long as all liabilities have been paid prior to appointment then the liquidator will have no cause to rely upon the indemnity.

How quickly do shareholders get paid?

From receipt of your signed engagement paperwork and all the required information, the company can be placed into liquidation within 7 days (subject also to receiving the required consent from the shareholders). Your cash can be distributed to you within 7 days of receipt of the cash.

It should be noted that upon liquidation, the company remains in existence until the process is complete. The period of the liquidation should take no longer than 12 months. Responsibility for every aspect of the company’s affairs is passed to the liquidators.

Why should I pay for an MVL when I can strike the company off?

There are significant potential disadvantages to striking off:

• Shareholders may miss the opportunity to take advantage of Entrepreneurs’ Relief and thereby legitimately make significant tax savings. You should speak to your tax adviser to see if you qualify. In many cases, these savings can far outweigh the cost of a Members Voluntary Liquidation.
• The liability of every director, managing officer and member of the company continues and may be enforced.
• The company may be restored to the register up to 6 years after it has been struck off.
• All assets and property of the company prior to dissolution become bona vacantia i.e. ownership is transferred to the Crown.

Wealth Management

After recovering your investment from your company in a tax-efficient manner, it makes sense to protect your hard-earned nest egg. Whatever your plans include – new ventures, retirement, etc., it’s important to take professional advice before making any decisions.

Although we do not offer financial planning and investment management advice, if you wish we can introduce you to an independent wealth management company which can provide a complete range of financial services for individuals and businesses. We only deal with experienced advisers who are authorised and regulated by the Financial Conduct Authority.

Initial meetings with a wealth management company are free of cost.

Financial advisory services include:

• Pensions and retirement planning
• Savings, investments and portfolio management
• Inheritance tax planning
• Life insurance and family protection

The independent tailored financial advice aims to help turn your plans into reality and the sooner you start your financial planning the greater your chance of realising your goals; short, medium and long term.

In summary

For solvent limited companies with more than £25,000 in cash and assets to distribute, a Members Voluntary Liquidation may be more tax-efficient than a dissolution when it comes to closing down your company. As long as your company is able to pay all of its liabilities, this could be the best procedure for your business.

How we can help

If you’re thinking of liquidating a solvent company and want to do so in the most profitably way, we can provide you with free, regulated and actionable advice regarding your business. We can help advise you on Entrepreneurs’ Relief. The process is relatively straightforward and with our very competitive fixed fee quotes we can ensure a return to shareholders is maximised.

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