In this article we’ll explore what a members voluntary liquidation is, and how it could benefit your limited company.
And remember, our advisors are on hand if you need help or advice.
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.
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.
Tax Benefits of a Members Voluntary Liquidation
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.
Capital Gains Tax
In an MVL the distributions to company members are taxed as capital gains. As of 2019/20 the annual exemption from capital gains is £12,000, meaning any capital gain up to this point is taxed at 0%.
Entrepreneurs Relief Targeted Anti Avoidance Rules (TAAR)
For shareholders to qualify for entrepreneurs relief they must:
- Hold at least 5% of the shares
- Hold the position of company director
- They must have owned the shares for 12 months minimum
- The company must have traded
- The MVL must be completed no later than 36 months after the limited company stopped trading
The lifetime limit on Entrepreneurs relief is £10 million.
Distributions in specie in solvent liquidations
In an MVL it is possible to take advantage of distributions in specie, which effectively means shareholders can be paid using other assets as an alternative to cash.
So if a shareholder wanted to be paid in physical assets such as property or land, or financial assets such as bonds, this could be a viable alternative to then receiving cash.
Criteria 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.
Is an MVL Right for Our Company?
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.
The MVL process
Below we have covered the Members’ Voluntary Liquidation process in five steps to show how the procedure progresses in the following order:
(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 write and 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.
(4) Liquidating the Company
The liquidator will commence the process of liquidating the company. Put simply; this will involve realising all of the company’s assets, paying off its creditors and distributing the remaining proceeds between the shareholders.
(5) The Final Meeting
Once the liquidation process has been completed, the liquidator will need to convene a final meeting of the shareholders. They also need to send a notice of the liquidation to the London Gazette.
Costs of a Members Voluntary Liquidation (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 for £650.00 upwards.
Bear in mind however by selecting the Members Voluntary Route you get the benefit of Entrepreneurial relief. Essentially this means you will pay 10% tax on the gains, so the greater the assets, the more cost effective the Members Voluntary Liquidation becomes.
Members Voluntary Liquidation Vs. Striking Off
MVL’s are appropriate for companies with assets but no debts or, if there are debts, they must be paid off first.
Striking off a company is the preffered solution for companies with no assets, and therefore no need to take advantage of the tax benefits offered by the members voluntary liquidation.
Voluntary Strike off treats assets after the initial £25,000 as income, so for larger companies there’s a clear tax disadvantage to attempting this instead.
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.