Members’ Voluntary Liquidation (MVL) is a solution for a company that has fulfilled its purpose, has stopped trading, can pay all its debts in full, and allows the company’s shareholders to realise their investment in a tax-efficient way.
This is especially true if shareholders qualify for Business Asset Disposal Relief (formerly known as Entrepreneurs’ Relief), which reduces the tax rate to 10% on qualifying assets up to the first £1m received by shareholders in their lifetime.
There are many reasons why a company might cease to trade. Examples include:
Generally, an MVL is a tax-efficient process for shareholders to receive the surplus cash/assets from their company. This is because, in an MVL, the payment of surplus assets/cash by a liquidator to shareholders is treated as a capital distribution for tax purposes. Capital distributions are subject to capital gains tax, which may be more tax efficient. In certain circumstances, shareholders may also qualify for Entrepreneurs Relief which reduces the tax on the capital gain even further.
Before an MVL, the company will have ceased trade, sold or disposed of its physical assets and settled all its debts, generally leaving only a large cash balance. If there are any remaining assets to recover/sell then this can be done by the liquidator, or they can be distributed to the shareholders directly in place of their cash value.
We support company directors and their accountants in managing the structured wind-down of trade and coordinate the formalities of placing the company into MVL.
Once in MVL, we act as the liquidators to ensure that all debts have been paid before returning surplus cash/assets to the company’s shareholders.
Assuming no creditor claims or HMRC objections are received, shareholders will receive the first distribution of cash assets (less £10,000) within 6-7 weeks of commencement of liquidation.
Non-cash assets and the retained £10,000 are distributed to shareholders just before the conclusion of the liquidation, typically within 5 to 7 months of commencement of liquidation, provided no creditor claims are received in the interim and receive formal clearance HMRC to conclude the liquidation.
Ideally, the company will have ceased to trade and final accounts prepared and approved by the directors. We also recommend that all debts and HMRC tax liabilities are settled before liquidation.
Speak with a licensed insolvency practitioner to confirm that an MVL is right for you and your company.
We will assist in the preparation of a formal Declaration of Solvency (DoS). This summarises the company’s assets and liabilities to show that the company is solvent and can pay its creditors (if any exist), with statutory interest, within 12 months.
We coordinate the associated steps necessary to place your company into CVL. This includes drafting all necessary paperwork and coordinating necessary virtual meetings of directors, shareholders and creditors.
The company’s directors must swear the DoS in front of a solicitor to confirm the content to be true. We coordinate a board meeting of directors, followed by a general meeting of shareholders, which resolve to place the company into MVL.
It is the role of the appointed liquidator to settle any outstanding debts (if any) before distributing the company’s assets to its shareholders.
The liquidator must obtain clearance from HMRC to confirm that they have no objection to the liquidation being completed. Therefore, it is very important that before liquidation the company’s accountant has submitted all tax returns, that there are no ongoing investigations and all tax has been settled.
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.
The director of a group of solvent companies approached Bailey Ahmad when he decided to sell the group’s multiple business interests with a view to his retirement. He sought our help to extract the value of his shares in the group (around £550,000) in the most tax-efficient manner possible.
We recommended placing all three companies into MVL with a view to making a capital distribution to the shareholder, which would in this case qualify for Business Asset Disposal Relief (formerly known as Entrepreneurs Relief). The rate of tax charged on the capital distribution would therefore be only 10%.
We worked closely with the group’s accountant to wind up the companies efficiently, dealing with all closure matters appropriately and ensuring that the distribution of surplus cash to the shareholder was made in a timely manner.