Members Voluntary Liquidation (MVL): a Guide
A Members Voluntary Liquidation (MVL) is a legal process through which a solvent company can wind up its affairs and distribute its assets among its shareholders. It’s a common method for shareholders to extract value from a business that is no longer needed without incurring unnecessary tax liabilities.
In this article, we will provide an overview of MVL and answer some of the most common questions about this process, including when it is appropriate to use, the eligibility criteria, the timeline, tax benefits, the process itself, and the costs involved.
If you decide an MVL is best for you, we can help. We have fully licensed Insolvency Practitioners and specialise in cost-effective, efficient, and practical business advice and services.
- What is a Members Voluntary Liquidation (MVL)?
- What is the Process for a Members’ Voluntary Liquidation (MVL)?
What is a Members Voluntary Liquidation (MVL)?
A Members Voluntary Liquidation (MVL) is a type of voluntary liquidation initiated by shareholders to close a solvent company.
It is used when the directors believe that the company has come to the end of its useful life and that it is no longer viable.
In an MVL, the company’s assets are sold, and the proceeds are distributed amongst the shareholders. The process is carried out by a licensed insolvency practitioner appointed as the liquidator.
It is appropriate for companies with assets over £25,000.
Benefits of an MVL
|Improved tax rates on shareholder distributions||Shareholders may benefit from lower tax rates on distributions than they would on income|
|Tax-efficient returns to shareholders||Surplus assets can be returned to shareholders in a tax-efficient manner|
|Quick access to funds||Shareholders can gain access to funds quickly|
|Peace of mind||An MVL can provide peace of mind to shareholders that the company’s affairs have been settled appropriately.|
|Cash value||An MVL can extract the value of the business in the form of cash, allowing shareholders to realize the value of their investment|
When to use an MVL?
Here are some common scenarios where an MVL may be used:
- When a limited comapny has assets, such as property, vehicles, stock and cash in the bank, yet the company has no future use or purpose.
- If the company’s shareholders and directors would like to retire and close the company down.
- If a director does 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.
- If a director wishes to start a new venture with a new company and would like to extract the asset value from the existing company beforehand.
Eligibility for an MVL
Companies choosing members’ voluntary liquidation should be solvent:
- able to pay all taxes
- able to pay all creditors
- able to meet all existing contractual obligations
The first thing 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 vital that this information is accurate and reflects the true status of the company’s affairs, as submitting a false Declaration of Solvency is a grave offence.
The declaration of solvency must be made within 5 weeks of the date on which the directors resolved to wind up the company and must be supported by a statement of the company’s assets and liabilities.
What is the Process for a Members’ Voluntary Liquidation (MVL)?
Key steps for an MVL include :
(1) Directors Board Meeting
The company directors will hold a board meeting and resolve to appoint a liquidator for the company’s liquidation. They will also agree on 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 must follow set requirements and 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 must resolve to pass the vote for the company’s liquidation by a 75% majority. This resolution needs to be passed within five weeks of filing the declaration of solvency 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.
(4) Asset Realization
The liquidator must sell the company’s assets, settle outstanding liabilities, and distribute any remaining funds to the shareholders.
(5) Shareholders Sign Deed of Indemnity – A signed indemnity allows for company funds to be distributed to shareholders prior to the MVL process officially ending. This means that shareholders can receive money sooner rather than waiting months to receive the money tied up in the company.
Once all the company’s assets have been sold, the liquidator will apply to Companies House to dissolve the company.
How Long Does a Member’s 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, call us at your convenience. With the details of your case in hand, we’ll be able to advise fairly accurately how long this might take.
What are the tax benefits to an MVL?
MVLs come with significant tax benefits.
It’s possible to save money with an MVL by paying only 10% capital gains rather than the normal CGT rate of 20% (or 28% if the gains relate to residential property)
In fact, these gains are even more substantial if you consider the alternatives of extracting the profits as dividends up to 38.1%) or salary (up to 45%).
This was known as Entrepreneurs Relief (before 6 April 2020) and is now called Business Asset Disposal ReliefTrusted Source – Legislation – Finance Act 2020, Schedule 3, Entrepreneurs Relief.
What are the criteria for Business Asset Disposal Relief in an MVL?
|Ownership and Trading Period||The shareholder must have owned the shares for at least two years and the company must have been trading for at least two years.|
|Shareholding||The shareholder must own at least 5% of the company’s ordinary share capital and voting rights.|
|Active Participation||The shareholder must be an officer or employee of the company or a group company or have been for a continuous period of at least two years.|
|Maximum Relief||The maximum relief available is £1 million per individual over their lifetime.|
A claim for Business Asset Disposal Relief, formerly Entrepreneurs’ Relief, must be submitted to HMRC within 2 years from the end of the tax year in which the sale or liquidation of the business occurs.
For example: for a sale which takes place in the 2021/22 tax year (which ended on 5th April 2022), any claim for Business Asset Disposal Relief on this disposal must be made to HMRC by 5th April 2024.
It’s important to note that the claim comes on the personal tax return of the individual who has made the capital gain.
What are the Costs of an MVL?
The costs of a Members Voluntary Liquidation (MVL) can vary significantly depending on the size and complexity of the company and the fees charged by the Insolvency Practitioner (IP) handling the process. However, to give you an idea of the costs involved, you should expect to pay at least £4,000 for the IP’s fee.
In addition to the IP’s fee, there are other costs to consider, such as disbursements. Disbursements typically include legal and administrative costs, such as advertising in the Gazette, which is a legal requirement in an MVL. The cost of advertising in the Gazette is typically around £60.
Other costs that may be incurred during an MVL include legal fees, accounting fees, and other expenses related to the sale of the company’s assets and settlement of its liabilities. The total costs of an MVL can add up quickly, so it is important to understand the fees and expenses involved before proceeding with the liquidation.
To find out more about how the members voluntary liquidation process (MVL) can enable you to liquidate your limited company, call us on 0800 074 6757.
An MVL can offer significant tax benefits for shareholders, such as reduced capital gains tax of 10% rates via what is called Business Asset Disposal Relief, and the ability to treat distributions as capital receipts rather than income.
No, you cannot do a Members Voluntary Liquidation (MVL) yourself. An MVL is a legal process that requires the involvement of a licensed Insolvency Practitioner (IP) to act as the liquidator.
The liquidator must ensure that the MVL complies with the relevant laws and regulations, including those relating to tax and employment.
The primary sources for this article are listed below, including the relevant laws and Acts which provide their legal basis.
You can learn more about our standards for producing accurate, unbiased content in our editorial policy here.
- Trusted Source – Legislation – Finance Act 2020, Schedule 3, Entrepreneurs Relief