What is a members voluntary liquidation, in what circumstances is it the best or a viable option, how long does it take and what are the costs and other things to know? Read on to find out.
If you do decide an MVL is appropriate for you, we can help. We are fully licensed Insolvency Practitioners and we specialise in cost effective, efficient and practical advice and services for businesses.
What Does Members Voluntary Liquidation (MVL) Mean?
A Members Voluntary Liquidation is the process through which the shareholders can close a solvent limited company.
It is the most tax-efficient means of closing a solvent company without debts, and often used by directors reaching retirement.
For companies with assets over £25,000, it requires the assistance of an insolvency practitioner who will liquidate any assets and distribute the proceeds to share holders. Finally, the company will be dissolved.
Is an MVL the right option?
Here are some common scenarios where an MVL may be used
- Your company has plenty of assets, such as property, vehicles, stock and cash in the bank, yet the company has no future use or purpose.
- The company’s shareholders and directors would like to retire and transfer the firm’s assets and cash over to their personal side and close the company down.
- You may not wish to have anything to do with the company going forward and may want to realise any assets and cash that are within the company.
- You may wish to start a new venture with a new company and would like to get what you can out of your existing company, beforehand.
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 at Company Debt is on processing the 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.
Members Voluntary Liquidation Tax Benefits
It’s possible to save money with an MVL by making a distribution out of the company as capital (10% tax) rather than as income (up to 45% tax). This mechanism offers a huge advantage to the MVL process, but the criteria for this is strict. Business Asset Disposal Relief eligibility may also be a factor in deciding to go the MVL route.
Preparing for an MVL
The first thing that you will need to do is ensure that you have up to date financial information for the company as you will use this to prepare the Declaration of Solvency . It’s really important that this information is accurate and reflects the true state of the company’s affairs as to submit a false Declaration of Solvency is a very serious offence.
You should also spend significant time thinking about whether this is the right option for your company. If your company is indeed solvent, do you want to wind it up or could you continue to trade? If you are winding up the company because you’re having problems paying the bills, it’s likely that the company is insolvent and therefore a Creditors’ Voluntary Liquidation will be the appropriate form of liquidation to use.
If the company assets are valued more than a minimum of £25,000 net (after all creditors have been paid), then you must use an insolvency practitioner as liquidator.
The MVL process
Key steps for an MVL include :
(1) Directors Board Meeting
The directors of the company will hold a board meeting and resolve to appoint a liquidator for the liquidation of the company. They will also agree how to convene the necessary shareholders meeting for step 3.
(2) The Declaration of Solvency
The directors have to sign a Declaration of Solvency. The declaration states that the company is solvent and needs to be signed by a certain number of directors (the number varies by the size of the company). The declaration needs to follow set requirements and must also be filed at Companies House.
(3) The Shareholders Meeting
Depending on the company’s Articles of Association, the Directors will either need to convene a meeting of the shareholders or send out a written resolution to the shareholders. In both cases, the shareholders need to resolve to pass the vote for the liquidation of the company by a 75% majority. This resolution needs to be passed within a five week period of the filing of the declaration of solvency being filed at Companies House. The resolution must also be advertised in the London Gazette.
Once the shareholders pass the resolution, the liquidation comes into immediate effect.
Cost of an MVL
Unfortunately, it’s very hard to estimate the costs of a members’ voluntary liquidation as they will vary significantly depending on the size and the complexity of the company itself.
To give you an idea, you should estimate from £4000 upwards for the Insolvency Practitioners fee.
There is also a small cost of approximately £60 for disbursements – (advertising in the Gazette, which is legally required)
To find out more about how the members voluntary liquidation process (MVL) can enable you to liquidate your limited company, call us on 08000 746 757.