Members Voluntary Liquidation (MVL)
How to exit and liquidate a solvent company you don’t want to run anymore.
A MVL is a solvent company’s directors putting their business into liquidation voluntarily as an efficient way to close it down.
What is a Members Voluntary Liquidation?
A Members Voluntary Liquidation (MVL) is the formal procedure to close down a solvent company.
Solvent means that the company has sufficient assets to cover its debts and all parties get paid in full, with any remaining funds distributed to shareholders or “members”.
This not to be confused with a Creditors’ Voluntary Liquidation (CVL) which is for an insolvent company – where normally only “creditors” can expect to see some, if any, of the proceeds of the liquidation.
Why an MVL?
In an MVL, all company assets are handed over to a liquidator whose role it is to dispose of them in a controlled and tax efficient manner.
This is opposed to company directors running down the business, selling off assets and taking any remaining profit as dividend. With this, there is a risk that you will pay substantial sums in unnecessary tax.
A MVL can be the most TAX efficient way to close a solvent company.
When is a MVL a good option?
Useful for shareholders who are planning retirement or just don’t want to run a business any more.
Project or product completed?
A tidy way to close a company when it has come to the end of the project it was formed for.
To close a subsidiary
Enables a group of companies to close down a subsidiary which is no longer required.
Potentially pay a lower rate of tax than close the company by other methods.
Benefits of a MVL
- Low tax rates on shareholder distributions
- Saves accounting and audit fees
- Saves management time in preparing statutory returns and compliance information
- Reduces risk to directors
- Improves transparency by simplifying complex and unwieldy structures thereby enhancing investor perception.
- Returns surplus assets in a tax efficient manner to shareholders.
- Quick access to shareholder funds.
- Extract the value of the business in the form of cash.
If shareholder distributions are in excess of £25,000 a Members Voluntary Liquidation enables capital gains tax rather than income tax to apply.
- The distribution to shareholders is treated as a capital gain and not taxed as income/dividend.
- Entrepreneurs Relief can be far more tax efficent in certain circumstances.
- Saving money on taxes especially if a high rate taxpayer.
The actual tax position will depend upon the specific circumstances of each case. All shareholders need to take independant legal and tax advice.
The MVL Process
The directors must make a Declaration of Solvency which states that the company is solvent and is able to repay its debts together with statutory interest within 12 months.
Once this declaration has been made, a meeting of the shareholders is called to pass the necessary resolutions and appoint a liquidator.
A Licensed Insolvency Practitioner (such as ourselves) must be appointed as the liquidator and it is their role to realise all the assets of the company and distribute to creditors in the correct order.
Following the settlement of all the companies’ debts, the Liquidator will then distribute the remaining funds between the shareholders.
Costs (our fees) depend on the complexity of the case – so we can only give a firm estimate once we have the necessary details.
The costs of an MVL will be paid from the funds at the bank and will significantly save you money when compared with the tax savings.
We strongly recommend that independent professional tax advice is taken prior to a company entering an MVL for this reason (we can help you with this).
Talk To The Experts
If you have a cash-rich company and want to keep your tax bills low then an MVL can be a very tax-efficient way forward.
Anne Ledwith - Senior Insolvency Administrator
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