The very term “liquidation” often comes with the image of financial distress but for solvent business owners and directors looking for a structured and tax-efficient exit, a Members’ Voluntary Liquidation (MVL) is a potent, yet frequently misunderstood option. 

Most simply, an MVL is a formal legal process used to wind up the affairs of a solvent company but directors might be surprised and reassured by some of the key aspects they aren’t familiar with. 

Here’s five important points directors might not but should know about MVLs:-

  1. An MVL means solvent, not struggling

One of the biggest misconceptions about liquidation is that it’s always a sign of financial difficulty but regarding an MVL it’s the opposite scenario. It’s a formal legal process exclusively for solvent companies – meaning they can pay all their debts in full, with interest if necessary, within 12 months. Directors are required to make a formal legal declaration, known as a Declaration of Solvency, to prove this ability. This distinction is crucial because it reassures creditors that they will be paid everything they’re due in a timely manner.

  1. The tax landscape is changing

A significant appeal of an MVL is its tax efficiency. Distributions to shareholders through an MVL are typically treated as capital distributions and subject to Capital Gains Tax (CGT), which is generally lower than income tax rates. Furthermore, qualifying business owners can access Business Asset Disposal Relief (BADR – formerly known as Entrepreneurs’ Relief) which provides an even lower rate of CGT.

However, directors need to be aware that the tax rules around MVLs have notably changed. Firstly, the rate of CGT that applies to BADR increased from 10% to 14% on April 1st 2025 and is scheduled to rise again to 18% from April 1st 2026. This means that closing a solvent company through an MVL could be more tax-efficient sooner rather than later. 

Additionally, directors must be mindful of the Targeted Anti-Avoidance Rule (TAAR). This rule is designed to prevent individuals from exploiting MVL tax benefits if the main purpose of the liquidation is tax avoidance. For example, if a company is liquidated and shareholders start a similar business or trade within two years, HMRC may reclassify distributions as income (subject to income tax) rather than capital gains. Your accountant will be able to give you specific tax advice based on your individual circumstances. 

  1. Your powers cease but obligations remain

Once the shareholders of a business decide to proceed with an MVL, they must appoint a licenced insolvency practitioner (IP) who acts as the liquidator during the process. 

A key point directors might overlook is that once the liquidator has been appointed, the directors’ powers cease and the liquidator manages the entire process.

However, before the liquidator is appointed, directors have crucial preparatory tasks and a significant legal obligation, the Declaration of Solvency. This document, detailing the company’s final financial position, must be sworn by directors before a solicitor. It’s a formal affirmation that the company can pay all its outstanding debts within 12 months. It’s vital to remember that making a false declaration of solvency is a criminal offence. Preparing thoroughly, including settling all liabilities and consolidating funds, is crucial to avoid delays and potential issues.

  1. Creditors are prioritised and paid in full

As a director, understanding the MVL process from a creditor’s perspective can be useful and also provide peace of mind.

In an MVL, a creditor’s primary right is to be paid in full. The liquidator is legally obliged to ensure all creditors are paid before any money is returned to the company’s shareholders. 

Creditors will be formally notified of the liquidator’s appointment and asked to submit their claims, usually with supporting documentation, within a minimum of 21 days. Once claims are validated, the liquidator will pay the outstanding debts in full, along with any statutory interest accrued. This interest is currently 8% and is applied from the date the liquidation commences for claims paid after that point. This rigorous process ensures fairness and a clear method to conclude the business’s financial obligations.

  1. It can be quick and cost-effective (if you’re prepared) 

Many directors might not realize just how swift an MVL can be.

While the full procedure involves several stages, it can often be concluded relatively quickly, with the total timeline potentially finalised within ten days if all parties are amenable and there are no outstanding issues. For simpler and more straightforward cases, funds can be distributed within seven days of the company’s cash receipt by the liquidator, subject to shareholder indemnities.

MVLs are also generally considered less expensive than other types of liquidation. Specific costs vary based on the circumstances of the individual company but the full process will most likely cost between £1,600 and £3,500 plus VAT and disbursements. 

Disbursements include statutory advertising in The Gazette, a general bond, and signature witnessing for the Declaration of Solvency. Completing all preliminary tasks properly, such as de-registering for VAT and PAYE, settling all non-cash assets and preparing final accounts is crucial for keeping costs down by avoiding additional work and delays.

A Members’ Voluntary Liquidation offers a clear, efficient and tax-effective process for directors to close a solvent company and realise the value built up over the years. 

Understanding these nuances can help directors navigate the process confidently and make informed decisions about their company’s future. 

If you think an MVL might be the right way forward for your business then get in touch with us. We offer a free initial consultation for directors to discuss all their available options and to ensure a smooth process from start to finish.