If your company is solvent and can pay its debts but you want to close its doors, a members’ voluntary liquidation is a way to formally wind up your company affairs and tie up any loose ends.
Also known as a solvent liquidation, a members’ voluntary liquidation is commonly used in instances where business owners are retiring, groups are restructuring or when a company simply has no further purpose. Additionally, when company assets accumulate to over £25,000 it can also be an effective method for tax planning.
Is an MVL right for me?
Firstly, to qualify for an MVL, your company must be solvent and able to settle its liabilities in full within 12 months. If your company is insolvent, an alternative closure method is a creditors’ voluntary liquidation.
Secondly, if your company has retained profits of over £25,000, an MVL is a good way to extract the proceeds from the business. However, if your business has smaller profits, you could consider a company dissolution instead.
How MVLs works
Whether you want to retire or step down, or if your company has fulfilled its purpose, in a MVL any cash or assets will be quickly distributed to shareholders and directors in the most tax-efficient way before the company is legally closed. The process of an MVL is as follows:
1. Declaration of solvency
The directors make a statutory declaration that the company is solvent and a closing financial statement is sworn before a solicitor.
2. Shareholders meeting
Within five weeks of the declaration of solvency, a shareholders meeting is held where the shareholders will be asked to agree to the company being placed into liquidation.
3. Published in the London Gazette
Once a licensed insolvency practitioner has been appointed and the meeting concluded, the appointment will be published in the London Gazette.
4. Realising and distributing the assets
The insolvency practitioner will then take control of the company and realise the assets as well as settling any creditor claims. The remaining funds will then be distributed to the shareholders.
How much does an MVL cost?
MVLs are more expensive than simply striking off a company due to the involvement of an insolvency practitioner – however, when significant sums of money are involved, it is important to make sure things are handled by a professional who will ensure your company is closed down in the most appropriate and cost-effective manner. As well as the insolvency practitioner’s fee, you will also need to pay other smaller costs known as expenses which mainly cover the cost of legal notices.
How tax efficient are MVLs?
One thing that makes MVLs so popular is that all retained profits are treated as capital rather than income. This means that any funds distributed to shareholders are subject to Capital Gains Tax rather than income tax resulting in a significant tax saving, especially when large sums of profits are involved.
How long does an MVL take?
In straight-forward cases where there are no outstanding liabilities, the MVL is typically completed and the company is formally closed within three to six months.
How McAlister & Co can help
With over 20 years of experience, McAlister & Co are one of the most in-demand licensed insolvency practitioners in the country. We provide expert advice to directors, sole traders and partnerships about the variety of different options available.