A Members’ Voluntary Liquidation (MVL) is a solvent means of closing a company which has come to the end of its useful life.
The directors instruct a Licenced Insolvency Practitioner to assist with due diligence, preparing a statutory declaration of solvency and the necessary resolutions for shareholders to pass to place the company into MVL. The directors swear the declaration of solvency in the presence of a solicitor, affirming that the company can pay its debts in full within 12 months.
The distributions made in an MVL will normally be treated as capital distributions rather than income distributions, meaning that the shareholders will pay a lower rate of tax on the distributions than would be the case if a shareholder received dividends outside of an MVL.
An MVL may be appropriate where the business and assets of the company have been sold leaving behind the cash from the sale proceeds and other assets which then need to be paid out to shareholders prior to the company being closed down.
An MVL may therefore be preferable to the alternative of shareholders receiving payment of dividends followed by striking off the company at Companies House. Shareholders may opt for strike off if the company’s affairs are straightforward and there are less than £25,000 of reserves/assets to distribute, as anything under that amount can be paid as a capital distribution. However, where there are in excess of £25,000 of reserves/assets available for distribution, then an MVL is likely to be the best option to close the company and make payments to shareholders.
The liquidator’s role is to realise the company’s assets and pay off its liabilities before making distributions to the shareholders and obtaining tax clearance to close the liquidation from HMRC. It will be important for shareholders to seek independent tax advice regarding their financial position prior to undertaking an MVL and many other factors will need to be considered. Get in touch with us to find out more about how an MVL may be an appropriate option for your company.