One thing we enjoy doing at BusinessRescueExpert is dispelling myths that have built up about the industry.
Possibly the one we hear the most is that only businesses that are in debt or are unviable go into liquidation.
The fact is that hundreds of profitable or otherwise good businesses decide to close for various reasons such as retirements, consolidations, entrepreneurs wanting to begin again or go in a different direction – you name it.
The preferred method to close a solvent business is known as a Members Voluntary Liquidation (MVL) and differs from other types of liquidation in several important and different ways.
As part of our new “BRE answers” series, we’ve compiled a list of the most common questions and queries we receive from business owners about MVLs and we’ve tried to answer them for you – in one place!
When is an MVL appropriate?
MVL is appropriate when a company is solvent, meaning it can pay off its debts and liabilities, and the shareholders wish to close the company and distribute its assets.
To be eligible for an MVL you must meet the following:
- Has it stopped trading, or is it about to?
- Did it carry out trading activity (as opposed to non-trading such as investment)?
- Have you owned your shares for more than 12 months?
- Do you have over £25,000 worth of assets to distribute to shareholders?
- Can it repay all of its debts within a 12 month period?
Who can initiate an MVL?
MVL can be initiated by the company’s directors or shareholders. However, this means that the approval of at least 75% of shareholders is necessary to proceed.
What is the role of the liquidator during an MVL?
Although a MVL is a voluntary closing down process, it is still carried out by an insolvency practitioner (IP). Their responsibilities include realising the company’s assets, paying off its debts and liabilities, and distributing any remaining funds or assets among the shareholders.
How are creditors paid in an MVL?
All creditors are paid in full during MVL. The liquidator sells the company’s assets, settles its debts, and ensures that all creditors are paid before distributing any remaining funds to shareholders.
How long does the MVL process take?
The MVL procedure is very efficient and could be finalised within 10 days if every party is amenable. However depending on the complexity of the individual case it could take just over six months to complete.
How much does an MVL cost?
In comparison to other types of liquidation an MVL is the least expensive. The full process can be completed for as little as £1,500 to £3,000 plus VAT and disbursements.
What happens to employees during an MVL?
Employees are usually made redundant when a company enters MVL. All staff members should be paid any owed wages, holiday pay and/or leave as per their contract until their agreed final payday.
Are there any tax implications by choosing an MVL?
Members voluntary liquidation allows shareholders to treat the final distributions as capital distribution as opposed to profits.
If you are a higher rate taxpayer, then usually you would expect profit to be taxed at 40-45%. However, with an MVL, if you are entitled to entrepreneurs relief, the same element will be taxed at 10%.
There are costs and other factors that need taking into account before seeing what savings might be made.
Can a company in financial distress go through MVL?
A MVL can only be used for solvent companies. If a company is insolvent (unable to pay its debts), it should consider a different process called Creditors’ Voluntary Liquidation (CVL).
Can the MVL process be stopped once initiated?
Once the MVL process has started, it can be stopped, but this would require a decision by the shareholders. The process would need to be formally halted through the appropriate legal procedures.
Every business is different and the situations they find themselves in are different too. Our “BRE Answers” series is not meant to be complete or exhaustive but to provide a basic explainer.
If you want to know more about members voluntary liquidations and how they could benefit you then please get in touch with us!
After a free consultation with one of our team of expert advisors you’ll be in a better position to choose your next move and probably with a better range of options than you originally thought you’d have.
All you have to do is pick the best time and date for you and we’ll do the rest.