A Members’ Voluntary Liquidation (MVL) is used when the Shareholders of a solvent company resolve to close down the company in order to realise the assets and distribute the funds to the members of the company.
MVLs are all about the tax planning…
The assets are sold and the proceeds of sale are used to discharge creditors in full and to cover the liquidator’s costs. All surplus funds are then returned to Shareholders in a tax efficient manner.
By definition, a solvent company is defined as being able to pay all of its debts and the value of its assets exceeds the sum of its liabilities.
Examples why shareholders may wish to close down a company
- Shareholders of the company may wish to close the business or retire but they still have tangible assets/cash at bank. Especially If they would like to transfer these assets to their personal estate.
- The Directors or Shareholders can benefit from the provision of Business Asset Disposal Relief (formerly known as Entrepreneurs’ Relief). This is a more tax efficient manner for you to extract money out of your company via an MVL rather than taking it out as a special dividend. You may wish to speak with your accountant prior to doing this.
- A change in circumstances. No longer wanting to carry on the business or the responsibilities associated with running a business.
- A group of companies may need reordering after a merger for example or a requirement to increase efficiency. More than one MVL may be required, or a transfer to other trading companies within the group. The insolvency practitioner can advise further on this.
The MVL Process
1. Instruct a Licensed Insolvency Practitioner
To instruct a Licensed Insolvency Practitioner to act on your behalf, such as Fortis Insolvency. We will guide you through the process and prepare all of the necessary paperwork.
2. Your Board Meeting
The Directors of the company will convene a Board Meeting and will look to issue notices to the members (Shareholders) convening an General Meeting (GM).
3. Declaration of Solvency
Prior to entering the MVL process the Directors will complete a Statutory Declaration of Solvency. This document details the assets and liabilities of the company and confirms that all debts, costs and interest can be met in full within 12 months. This document is sworn in front of a solicitor by all of the Directors of the company (if there are 3 directors or fewer) or a majority of directors (if more than 3 directors). The Debts will include all liabilities (whether or not contingent or crystallised), the full costs of the Liquidation itself and Statutory Interest (at the current judgment rate from the date of the commencement of the MVL tot he date the debt gets paid by the Liquidator – the rate is currently 8% per annum on a simple interest calculation basis).
There is a really simple and easy way to save what can be a lot of money – make sure all debts are paid in full prior tot he commencement of the MVL. That way, no statutory interest has to be paid!
4. Notice to Shareholders
The notices in relation to the GM are issued to the Shareholders providing a minimum of 14 days’ notice. The notice period can be reduced with 95% shareholder approval of the MVL, if the shareholders agree to waive their rights to notice.
5. General Meeting
This meeting takes place to resolve that the company is to be placed into Members’ Voluntary Liquidation and to appoint the liquidator and agree any basis of their remuneration.
6. Notice of Appointment
The liquidator’s appointment will be submitted to Companies House and advertised in the London / Edinburgh / Belfast Gazette.
7. Liabilities
We will ensure that all of your liabilities are paid and are up to date and collect any monies owing to the Company.
8. De-registration
We will de-register for VAT and also de-register the company as an employer.
9. Asset Realisation
Any remaining assets will be sold.
10. Transfer of Funds
Once appointed, the funds held in the Company bank account need to be transferred to our client account. These funds will be distributed to the Shareholders of the Company in accordance with the Company’s Articles of Association and shareholder’s participation rights.
11. Dealing with HMRC
The liquidator will obtain confirmation from HMRC to verify that there are no outstanding matters to enable the MVL process to be finalised.
12. Companies House Register
Finally, the liquidator will apply for the Company to be dissolved at Companies House.
Tax Benefits
One of the main tax advantages of a Members Voluntary Liquidation is that taxation is applied as if distributions were of capital rather than an income nature. Therefore, capital distributions should be subject to a lesser tax than if the funds were extracted as dividends outside of an MVL procedure.
Since the introduction of the Extra- Statutory Concessions Order 2012 any distribution to Shareholders when closing down a solvent business that has over £25,000 to make in shareholder distributions, is treated as income for tax purposes unless a Members Voluntary Arrangement is used.
In most cases, the Shareholders of trading companies meet the criteria for Business Asset Disposal Relief you can find out more about this here: https://www.gov.uk/business-asset-disposal-relief
Fortis are not tax advisors but will work with your tax advisor/ accountant to make sure that you are taking advantage of all reliefs available to you. Your accountant should be able to provide further information on the tax benefits associated with the MVL process.
If you wish to discuss the MVL process in more detail then please contact us for further guidance.
