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Tax-efficent liquidation

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If you are looking to liquidate your company in a low-cost, tax-efficient manner, a Members’ Voluntary Liquidation (MVL) may be the best choice.

The process acts as a solution for solvent companies wishing to liquidate, and transfer funds amongst shareholders and directors with maximum efficiency.

What is a Members Voluntary Liquidation?

A Members’ Voluntary Liquidation is a company closure procedure for businesses that are solvent. By definition, a company is solvent when it has the capital or assets to settle its debts and statutory interest in full, within a given period of less than 12 months.

Directors of a company may choose to pursue MVL for a number of reasons, including:

  • The retirement of a director, who wishes to transfer funds to a private estate. This is most common in smaller, family businesses.
  • Directors and shareholders wish to close the company, and take out funds in a tax-efficient manner.
  • A change in circumstances for a key director, who no longer wishes to have the responsibility of the company.
  • The reorganisation of a group of companies after a merger, in order to finalise tax affairs to increase efficiency.

What are the benefits?

There are many benefits to an MVL, making it a positive choice for solvent companies wishing to cease trading and liquidate. These include:

  • Tax-efficient distribution

In line with the Extra Statutory Concessions order (2012), an MVL can be used to distribute funds to shareholders of more than £25,000, without income tax being imposed. This differs to dissolution, which would require such funds to be taxed accordingly upon distribution.

  • Quick cash-release/distribution turnaround

Subject to shareholders signing indemnity, there is no need for HMRC to give clearance before the cash can be released. Funds are normally distributed within seven working days of receipt of cash from the company’s bank.

How does it work?

The process of an MVL, though strictly for solvent companies, is overseen by a licensed insolvency practitioner (IP) such as ourselves. The IP will call a meeting in which they shall discuss with you the timescale, and instruct you on how to make a declaration of solvency.

  • Declaration of solvency

Making a declaration of solvency without being formally declared solvent by a solicitor may see directors faced with serious consequences such as a fine or imprisonment. Directors must, therefore, meet with a solicitor to have this declaration sworn. There may be a small charge for this process.

The declaration must be sworn in by at least two of the company’s directors no more than five weeks before the liquidation takes place. A board meeting must be held to officially pass the resolution, and begin the liquidation proceedings.

  • Gathering of information

Once this process is complete, you will need to gather copies of all of your accounts and returns, as well as any final payments, up to the point of liquidation. These will be filed with HMRC. We will then perform a compliance check to confirm that voting rights and notice periods have been adhered to.

  • Advertising appointment

As IP, we will advertise our appointment in the London Gazette, and give any outstanding creditors the opportunity to make their claims. Though it is not likely that these will exist at this stage, this is always best practice.

  • Distribution of cash

We will then contact your bank to request payment of the company’s cash. Once received, this will be distributed to shareholders within seven working days. If your company is VAT registered, we will recoup the VAT on any costs incurred, and make a second and final distribution towards the end of the liquidation, which can take up to 12 months.

  • Indemnity

It is required for shareholders to sign a written indemnity upon engagement as security should any claims arise from creditors during liquidation. Should this happen, shareholders must agree to repay the relevant amount even after distribution has occurred. As long as outstanding liabilities have been settled prior to the appointment of a liquidator, this indemnity should not need to be relied upon.

How much does it cost?

The cost of an MVL varies depending on your company’s situation at the time of engagement. The costs are made up of two factors: the liquidator fees, covering the work of the appointed insolvency practitioner, and mandatory disbursements, which are part of the MVL process.

£1,695 MVL + VAT & disbursements

This option is appropriate for companies who have no outstanding liabilities at the point of liquidation, and simply require the company’s funds to be distributed between shareholders.

£1,995 MVL + VAT & disbursements

If your company has outstanding liabilities – debts yet to be settled, this price would be the most appropriate. This also covers companies that require assets to be distributed in specie.

Bespoke MVL + VAT & disbursements

Our bespoke MVL service would see us handle the valuation and sale of any physical assets, as well as oversee any outstanding or disputed creditor claims against your company. We offer a free face-to-face meeting with one of our specialist consultants to discuss your situation, and also uphold constant support throughout the process.

More on our MVL pricing structure here

In summary

For solvent companies with more than £25,000 in cash and assets for distribution, MVL may be the most tax-efficient option when pursuing liquidation. It hosts many advantages, including a quick turnaround, and requires no income tax to be imposed on the distributed funds. As long as your business is in a position to settle any outstanding liabilities, an MVL may be the right option for you.

How we can help

If you are considering bringing your solvent company to a close, for whatever reason, and would like to explore the tax-efficient benefits of MVL, we can help. Our team of licensed and regulated insolvency professionals have a wealth of experience in managing the liquidation of companies across all sectors. Our competitive, fixed-fee quotes make the engagement and overall process straightforward. We offer a free consultation with one of our experienced advisors to discuss your situation further. To find out more, get in touch today.

Authored by Lisa Hogg

Lisa Hogg

Director & Licensed Insolvency Practitioner

Beverley Horton Christopher Callaghan Stephen Hall

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