Members’ Voluntary Liquidation or MVL is a legal process used to formally wind-up a solvent company’s affairs. Only a licensed Insolvency Practitioner may act as Liquidator.
The process allows all outstanding matters to be closed out, net funds and assets to be distributed to shareholders and the company’s dissolution. A company is solvent if its assets are sufficient to settle all liabilities and costs, including interest, in full within 12 months of the company being placed into liquidation
MVL – Members’ Voluntary Liquidation
A Members’ Voluntary Liquidation or MVL is a legal process used to formally wind-up a solvent company’s affairs. Only a licensed Insolvency Practitioner may act as Liquidator. The process allows all outstanding matters to be closed out, net funds and assets to be distributed to shareholders and the company’s dissolution.
A company is solvent if its assets are sufficient to settle all liabilities and costs, including interest, in full within 12 months of the company being placed into liquidation. A majority of the company’s directors will make a statutory Declaration of Solvency confirming the company’s financial position.
Once the declaration is made, shareholders are then able to consider passing resolutions to place the company into liquidation and appoint a Liquidator. This process can be dealt with by way of a general meeting of shareholders or shareholder written resolutions. Upon the appointment of a Liquidator, the director’s powers cease and the liquidator becomes responsible for winding-up the company’s affairs. Directors have an ongoing duty to cooperate with the Liquidator and can be instructed to assist with the winding-up.
A members’ voluntary liquidation (MVL) is the formal process to bring a solvent company to a close. MVLs are only available for solvent companies and the directors are required to make a sworn declaration that the company:
- is solvent
- can pay all its taxes
- can pay all its creditors
- can meet all its contractual obligations
This includes its future liabilities that have yet to crystallise and will normally include closing the company’s accounts with HMRC by preparing and filing any PAYE/NIC, VAT and Corporation Tax returns and paying any outstanding balance. It may also include settling any long-term contractual liabilities, such as leases and finance agreements.
Once the directors are reasonably certain that the company will be able to meet all obligations before proceeding with an MVL, a shareholders/members’ meeting is convened to appoint a licensed insolvency practitioner as liquidator. The liquidator will then:
- realise the company’s assets
- settle any legal disputes
- pay any outstanding creditors
- distribute the remaining surplus funds to the company’s shareholders/members
Once the liquidator has completed these formalities and received clearance from HMRC, the company will be dissolved and formally removed from the companies register.
What is the differences between a Creditors’ Voluntary Liquidation (CVL) and a Members’ Voluntary Liquidation (MVL)?
Most companies that are placed into liquidation are those that have been unsuccessful and can no longer continue because they are unable to pay the monies that they owe to creditors. In these circumstances, the directors and shareholders will place the company into voluntary liquidation, known as a creditors’ voluntary liquidation (CVL), or a creditor will take legal proceedings to have the company wound up, known as a compulsory liquidation. Most notably, HMRC will petition the court for a company to be wound up compulsorily when a company has failed to pay outstanding taxes and HMRC has been unable to reach an agreement with the company.
However, the liquidation process can also be used to bring a company to a close when it is not in financial distress. There may come a time when a company has come to the end of its life and the directors and shareholders wish to close the business and formally wind up its affairs. In such circumstances, a members’ voluntary liquidation (MVL) may be the answer.
What is the process for a Members’ Voluntary Liquidation (MVL) and how can one be arranged?
Only a licensed insolvency practitioner can be appointed as a liquidator for an MVL and you will need to speak to one who will explain and guide you through the process. In general terms, the starting point for proceedings with an MVL is that the company must:
- have completed its business and ceased to trade
- anticipate having surplus funds left once all creditors have been paid
- have deregistered or be in the process of deregistering for VAT, PAYE/NIC and Corporation Tax
- have filed or be in the process of completing and filing accounts and returns up to the date the business ceased trading
- be able to pay any unpaid creditors within 12 months of the start of a liquidation
The MVL process is then as follows:
- The directors make a statutory declaration that the company is solvent. To do this, a closing financial statement must be prepared and must be sworn before a solicitor or notary. Where the company has more than one director the statement must be sworn by all or a majority of the directors.
- Once the statement has been sworn by the directors, and within five weeks of the declaration, a meeting of the company’s shareholders must be held. At this meeting the shareholders/members will be asked to pass a resolution to agree to the company being placed into liquidation and to appoint a liquidator.
- As mentioned above, the appointed liquidator must be a licensed insolvency practitioner. Once the formalities of the meeting are concluded, the appointment will be published in the The Gazette.
- At this stage, the liquidator takes control of the company and the directors’ executive powers cease. The liquidator will realise the company’s assets, settle any creditor claims and distribute any surplus funds to the shareholders/members.
- A company’s assets can be distributed in specie to shareholders/members, thereby alleviating the need for them to be sold.
- Any creditor claims that are paid after the liquidation commences will be entitled to receive statutory interest in addition to the amount owed by the company. This is currently 8% and is applied from the date the liquidation commences.
How Long does a Members’ Voluntary Liquidation take?
The actual liquidation time will vary depending on the complexity of the company’s financial situation. Our focus is to allow the processing of MVL as fast as possible., and we do this partly by requesting our clients to sign what is called a ‘deed of indemnity.’ This allows for the earliest possible release of funds, often within a week of the MVL’s completion.
The remaining balance depends on how long it takes HMRC to finish their side of the case. If you’d like a case-specific timeline, do give us a call at your convenience. With the details of your case in hand, we’ll be able to advise fairly accurately how long this might take.
How quickly do shareholders get paid in an MVL?
In straight forward cases where there are no outstanding liabilities, the MVL process is typically completed and the company formally closed within 6 months. However, a distribution will often be made to the shareholders before this time depending on the level of company assets and funds involved. This is done by way of a signed indemnity which will allow for the vast majority of funds to be paid out to shareholders almost immediately while the company is still going through the liquidation process. The indemnity provides protection in the event of previously unknown creditor claims being submitted following distributions being made.
A small amount will be held back by the insolvency practitioner until the company has been officially closed; the agreed fee for placing the company into an MVL will be retained by the liquidator plus disbursements, and any remaining funds will be distributed amongst the shareholders at this concluding point following approval from HMRC.
Benefits of a MVL?
The primary benefit of a liquidation is to bring a company’s affairs to an orderly closure, to appoint a liquidator to deal with the formalities and for the company to be removed from the companies register or dissolved. In an MVL, the liquidation should also result in an expedient distribution of the surplus funds to the shareholders/members.
In addition, any distribution to the shareholders/members may have certain taxation benefits for them. Dividend distributions in a MVL are usually classified as a Capital distribution rather than an Income distribution and would therefore be subject to Capital Gains taxation. This has lower taxation rates than income tax especially with the availability of the reduced rate provided by Entrepreneur’s Relief.
It should be noted that Entrepreneur’s Relief is subject to certain qualifying criteria. You can only claim relief on £1m over your lifetime, i.e sell 2 businesses for £500k in your life. This is going to be replaced by what is called Business Asset Disposal Relief in April 2021.
Whilst it may have taxation benefits for shareholders/members, the main purpose of the liquidation should not solely be for this purpose. Indeed, HMRC have Targeted Anti Avoidance Rules (TAAR) that allows it to challenge liquidation shareholder distributions where it considers that the main purpose of the liquidation was to avoid tax. An example of this is where a company is liquidated, and the shareholders decide to recommence a similar business or trade one or within a two-year period following the liquidation. In these circumstances, HMRC may consider that the main purpose of the liquidation process was to avoid tax and it could seek to re-classify any distributions as subject to income rather than capital gains taxation.
A MVL is the formal process for bringing a company’s affairs to a close. It is overseen by a licensed insolvency practitioner appointed by the members and who will oversee the process. Ultimately, the company will be dissolved and removed from the companies register once the liquidation process is complete. It may also provide certain taxation benefits for the members. However, the availability of any taxation relief will be dependent upon the shareholder’s circumstances and the prevailing taxation criteria at the time of any distribution.
Why might a company be placed into Members Voluntary Liquidation?
Here are the reasons why a company might be placed into Members Voluntary Liquidation:
- The company is looking to cease to trade and for shareholders this may be an appropriate exit strategy since they may be able to obtain a tax-efficient release of their capital under entrepreneurial relief. The distribution as a capital, through an MVL may be more tax beneficial compared to a distribution under income tax.
- There might be several shareholders that are looking to split the company’s assets and a section 110 IA86 reorganisation through Members Voluntary Liquidation might provide the strategy to facilitate this process. The assets (e.g. properties) are distributed in specie for the benefit of shareholders.
- The company’s Directors or Shareholders may wish to retire, move overseas or alternatively they are an IR35 company which is no longer required as they are now reverting to full time employment.
- A Members Voluntary Liquidation might be used as a tool to re-organise a group of companies for example if a subsidiary company is no longer required or may have become dormant and this is a way to close this company down.
Costing for an MVL 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 disbursements, which are a mandatory part of the MVL process.
£1,695 MVL + VAT & disbursements
This is for a straight-forward MVL where the company has no outstanding liabilities, and all assets have been turned into cash.
£1,995 MVL + VAT & disbursements
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 £1,995 MVL option would be the most appropriate.
Bespoke MVL + VAT & disbursements
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.
MVL vs Dissolving a Company
Dissolving a company – also known as ‘striking off’ – is a relatively simple process which is actioned by submitting a DS01 form to Companies House and paying the appropriate fee (currently £10). Notice of your intention to dissolve will be advertised in the Gazette, and as long as no objection to the strike off is received, the company will be struck off two months later. If your company owes money either to HMRC or trade creditors which it cannot pay, it is likely they will file an objection to the dissolution; your application will be suspended and you will then have to consider another closure measure such as a CVL or Administration.
Up to £25,000 can be taken from a company on striking off, and this will be treated as capital rather than income. You should remember that once the company is dissolved, any assets remaining in the business will become bona vacantia, and ownership will automatically transfer to the Crown. In order to claim these assets back you will need to pay to reverse the strike off and have the company restored to the register. Due to this you are strongly advised to ensure you extract all assets from the company before you begin the strike off process, once all liabilities have been paid in full
To find out more about how the members’ voluntary liquidation process (MVL) can enable you to liquidate your limited company, please feel free to contact us on the number about or simple complete the online enquiry form.