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Members Voluntary Liquidation (MVL)

A Members Voluntary Liquidation (MVL) is a voluntary closing-down process
initiated by the shareholders of a solvent company looking to close the company
and release cash and assets in the most efficient and orderly way.

It’s relatively straightforward and can be concluded in as little as ten days or
sometimes even less.

What is Members’ Voluntary Liquidation?

Members voluntary liquidation (MVL) is a process for solvent companies to wind up and distribute assets. An increase of ‘1-person contractor’ companies has given rise to a recent proliferation of MVLs, as contractors look to release cash in the most tax efficient way possible.

If a company is not trading or will soon cease trading and has over £25,000 in assets to distribute to its shareholders, using an MVL to shut the company has tax advantages for the shareholders.

What are MVLs?

In the same way that an owner of a business selling his shares might be entitled to pay reduced dividends via ‘entrepreneurs relief’, so a shareholder using an MVL at the end of the business can do the same.

MVLs were brought into legislation in 1986 as a legal means for a company to be brought to an end and make a final distribution of assets to its shareholders.

It is a formal process that requires a licensed insolvency practitioner to act on your behalf.

Is my company suitable for MVL?

  • Has it stopped trading, or is it about to?
  • Did it carry out a 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?

If the answer is yes to these, then your business is likely to be suitable for an MVL.

The MVL Process

Members Voluntary Liquidation (MVL) is often used where a company has come to the end of its natural life, and the directors and shareholders wish to wind up its affairs in an orderly manner.

The members voluntary liquidation timeline requires the involvement of a licensed insolvency practitioner, as it is a solvent  winding up process.

The MVL process can, generally, be dealt with in as little as 10 working days. However, there are various members voluntary liquidation steps and time limits set out below, which you need to be aware of.

How much tax do I pay under 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.

What are the various stages of the members voluntary liquidation process?

Stage 1

Initial company liquidation advice meeting (completely free)

Timeline: same day

This can be set up for the same day and, typically, takes place online or over the phone. Ideally, all of the board members should attend, which can be done via conference call, to go through the detailed process and implications of entering into members voluntary liquidation. If you choose to progress, terms of business will be sent across for you to review.

Stage 2

Finalise the company’s affairs

Timeline: usually 1-14 days

To keep the costs as low as possible, we generally recommend the directors finalise the company’s affairs before starting the members voluntary liquidation process. This will generally include:

  • Raising any final invoices
  • Selling any tangible assets which are not to be transferred in specie
  • Paying any outstanding creditors
  • Deregistering for VAT and PAYE and submit any final returns
  • Preparing draft final accounts and corporation tax returns*
  • Paying the estimated corporation tax balance

*These should only be in draft at this stage, as the final accounts and corporation tax return must be up to the date of liquidation.

Stage 3

Instruction and the declaration of solvency

Timeline: usually 1-3 days

Once you’ve finalised the company’s affairs, our terms should be agreed formally instructing us to liquidate the company. At this point, the agreed fee element should also be paid. There will be further costs we are required to pay to third parties within the members voluntary liquidation process. However, these will be paid once the company has entered members voluntary liquidation.

A declaration of solvency must be prepared, setting out the company’s remaining assets and liabilities, and confirming all debts can be paid within 12 months of the liquidation. This must be sworn before a solicitor or notary by all. Or, where there are 3 or more directors, the majority of the directors. As a health warning, if it emerges that the company is not solvent, a false declaration is a criminal offence.

Stage 4

Shareholders and directors meeting

Timeline: potentially same day

Depending on the number of shareholders, the meeting to place the company into members voluntary liquidation can be held almost straight away. If 90% of shareholders are actively engaged in the process, this is a possibility. Otherwise, 14 – 21 days notice must be given depending on the age of the company. Following this, the company can be placed into Liquidation.

Stage 5

Post liquidation and distribution

Timeline: 3 days to 6 months

Once the company is in members voluntary liquidation, any remaining assets can be realised and distributed firstly to any remaining creditors and then members. If all members provide an indemnity, an early distribution can be made while creditor claims are finalised. However, this is sometimes less practical where there is a significant number of shareholders.

Once all other issues have been dealt with and final clearance obtained from HM Revenue & Customs, the case can be closed and the company will be dissolved 3 months afterwards.

If you are looking to start the member’s voluntary liquidation process, feel free to contact one of our business rescue experts. The full MVL process costs from between £1,500 to £3,500 plus VAT and disbursements – contact us directly for a quote.

Frequently Asked Questions about Members Voluntary Liquidations
Is it expensive to liquidate the company this way?

An MVL is less expensive than other types of liquidation and the full procedure can be completed for as little as between £1,500 to £3,500 plus VAT and disbursements.

How long will it take to liquidate the company by this method?

The MVL procedure is quite efficient and could be finalised within 10 days if every party is amenable.

If issues become complicated then the process could be finished in just over six months.

What has to be done before the business can be closed?

Directors should finalise the businesses affairs before a meeting with shareholders. This includes raising final invoices, selling assets that aren’t going to be transferred as part of the business, paying outstanding creditors, deregistering for VAT and PAYE, preparing draft final accounts and corporation tax returns and paying the estimated corporation tax balance.

How are shareholders informed?

Shareholders are informed of the declaration of solvency and invited to a meeting usually within two weeks of the decision to liquidate.

The older the company is, the longer has to be given for shareholders to attend, although if 90% of them are actively involved in the process then this can be accelerated.

What happens to the business’s assets after liquidation?

After the business is formally liquidated, any remaining assets can be realised and distributed to any remaining creditors and members.

Once this has been finalised and final clearance obtained from HMRC then the case is closed and the company formally dissolved three months afterwards.

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