A Members’ Voluntary Liquidation (MVL) is a process that allows the directors of a solvent company to voluntarily liquidate their limited company to extract the profits from it.
Like other liquidations, in an MVL the directors appoint a licensed insolvency practitioner to act as the liquidator and oversee the closure of the company.
But an MVL differs from other types of liquidation in a few important ways.
1. It’s initiated voluntarily by the directors while the company is still solvent, rather than being due to financial difficulties and insolvency.
2. Assets are sold off to pay creditors in full, rather than giving creditors a pence in the pound offer.
3. It allows the distribution of capital to shareholders, unlike a Creditors’ Voluntary Liquidation (CVL) which focuses on creditor payment.
When can you use a Members’ Voluntary Liquidation to close your company?
You can use an MVL to close your company when it’s solvent and the directors are legitimately able to make a statutory declaration of solvency. If you can follow each of these steps, then an MVL could be a possible solution to closing your company.
1. Your company can pay its debts in full within 12 months of the start of the MVL process. This includes any future and contingent debts.
2. Your directors are able to make a sworn statement confirming the company’s solvency. This statutory declaration of solvency must be made within five weeks of the passing of the winding up resolution.
3. Your declaration can truthfully state that the directors have made a full inquiry into the company’s affairs and that they’ve formed the opinion that the company will be able to pay its debts in full within 12 months of the commencement of the winding up. (If made fraudulently, the directors may be liable to fines or prosecution.)
The benefits of closing your company using a Members’ Voluntary Liquidation
Tax advantages
One of the main benefits of an MVL is the potential tax advantage. With an MVL, any funds left after paying off creditors can be distributed to shareholders as capital rather than income. This means shareholders may pay Capital Gains Tax rather than Income Tax. This advantageous because Capital Gains Tax is set at a lower rate than Income Tax.
Most directors can also claim Business Asset Disposal Relief (previously known as Entrepreneurs’ Relief), which means you pay just 10% tax on qualifying assets.
There’s less stress
An MVL is taken care of by your licensed insolvency practitioner. Which means it’s generally a faster and simpler process than if you were to sell your assets, distribute funds and close the company yourself. Instead, your insolvency practitioner guides the process, while you can focus on closing down operations smoothly.
You’re legally safer
Licensed insolvency practitioners are qualified and have experience in closing a company. We have specific steps that we have to take to make sure everything is done ‘by the book’. Which means that all your creditors will be paid the correct amounts and none of the legalities will be overlooked – so they can’t come back to haunt you later.
Discover if a Members’ Voluntary Liquidation can be used to close your company
An MVL could be the best option for directors who are ready to close their solvent company and want to do it in an stress-free way. We can handle all the paperwork and organisation involved in the liquidation process and you could take advantage of potential tax savings.
Talk to our licensed insolvency practitioners and liquidation experts on whether an MVL is possible for your company closure.
To talk to a licensed insolvency practitioner and business rescue expert, call 0800 054 6580 or email [email protected]