Reasons to liquidate a solvent company.
When is a solvent liquidation required to get the maximum profits back from your company?
A solvent liquidation can occur when a company needs to be closed for reasons other than insolvency. Example of the reasons to liquidate a solvent company include:
- it was created to meet short-term demand or to fulfil a contract that’s now finished.
- it’s been dormant.
- the director or owner is closing to take employment with another company.
- the director or owner is retiring and wants to close the business.
For some businesses, the best way to close is to simply have the company ‘struck off’ the register at Companies House. But for those businesses with over £25,000 in available profits, seeking a solvent liquidation using a Members’ Voluntary Arrangement (MVL) is the most efficient way to close the company. It’s also the best way to ensure that all loose ends are tied, so that there are no nasty surprises from forgotten creditors after the company has ceased to exist.
The top 4 reasons to liquidate a solvent company
1. You’re a contractor looking to avoid IR35
If a contractor earns the majority of their money from just one contract with one company, this could compromise IR35 rules that dictate the regulations around whether a person is an employee or contractor.
Should they be found to be a technical employee of the company, they’ll have to pay tax as if they were employed – and not at self-employed rates. Trying to dodge IR35 can lead to contractors coming before a tax tribunal.
2. The tax benefits
Tax reasons to liquidate a solvent company are common for companies with over £25,000 in assets. This is the total amount of funds that can be distributed as capital by the closing solvent business, without a solvent liquidation.
By using an MVL to liquidate a company with assets over the £25,000 limit, you can take advantage of Business Asset Disposal Relief (also known as Entrepreneurs’ Relief) which reduces Capital Gains Tax to 10% for the first £1,000,000.
3. All assets are disposed of properly
When you close your company, any assets that are not sold or transferred to another company become the legal property of the Crown. This is most commonly referred to as Bona Vacantia. When you go through an MVL process, all your assets are liquidated – which means that they are extracted from your company before it closes and you get the maximum amount of profits back. After all, you put in the hard work. Why should other people be rewarded?
In other cases, some companies opt to be struck off the register at Companies House, only to find they still owe money to a creditor and go on to suffer fines and ill will. If any situation answers the question ‘when is solvent liquidation required?’ this is it.
4. Save time and money
Even a dormant company requires the yearly confirmation statement and accounts. Which often means paying your accountant to do the paperwork. If the dormant company no longer serves a purpose, removing the hassle of tending to it year after year is one of the reasons to liquidate a solvent company through an MVL.
How can liquidation.co.uk help you with reasons to liquidate a solvent company?
Whatever your reasons for seeking a Members’ Voluntary Liquidation, our licensed insolvency practitioners will guide you through the solvent liquidation process so that you get the most back from your business. And quickly. In many cases, we can even pay you the funds from the liquidation before the MVL process takes place.
As industry leading experts with 40 years’ experience, we are in the best position to match any like for like quote ensuring you receive the best service for the lowest price.
How do I know if my company is solvent?
A company is solvent when it:
- Can pay all its taxes
- Can pay all its creditors
- Can meet all its contractual obligations
If your company meets all these criteria, and you’re looking to close it, talk to us about an MVL.
What’s the difference between a Creditors’ Voluntary Liquidation (CVL) and a Members’ Voluntary Liquidation (MVL)?
A Creditors’ Voluntary Liquidation (CVL) is the liquidation option most commonly used to liquidate an insolvent company. This means it cannot pay its debts now or in the future, and can only do so by liquidating and distributing resulting funds to its creditors.
A Members’ Voluntary Liquidation (MVL) is used when solvent liquidation is required.
What’s the MVL process?
- The company directors first make a statutory declaration that the company is solvent. A closing financial statement is prepared and signed with a solicitor or notary as witness.
- Less than five weeks after the declaration, a meeting of the company’s shareholders must be held. At this meeting, they are asked to pass a resolution to agree to the company being placed into liquidation and to appoint a liquidator.
- The liquidator must be a licensed insolvency practitioner. They now take charge of the company. Their first job is to place a notification of the liquidation in The Gazette.
- The directors’ powers now cease. The liquidator liquidates the company’s assets, settles any outstanding debts and distributes funds to the shareholders.
- With all loose ends tied up, the liquidator applies to Companies House for the company to be struck off the register.
What does ‘struck off’ mean?
[Company] To be struck off – also called a strike off – simply means that the company is removed from the register at Companies House. This happens when a company is formally closed. Some owners and directors choose to take this option to close their solvent company, especially if there are little to no assets. It’s important to note that this is usually done without the aid of a licensed practitioner and so can leave loose ends, such as overlooked debts and paperwork.
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