Members Voluntary Liquidation (MVL)

In most cases, Directors look to place their Company into Members’ Voluntary Liquidation when there is significant value in its assets but there is either no desire to sell it as a going concern or no real market for it. In these circumstances, a Members’ Voluntary Liquidation allows shareholders to extract the value they have worked so hard to put into the Company.

Members’ Voluntary Liquidation is a process by which a Solvent Company (that is a Company that can afford to pay all of its debts) can be closed down in a controlled, efficient and stress-free manner whilst also maximising tax benefits to its shareholders.

In most cases, Directors look to place their Company into Members’ Voluntary Liquidation when there is significant value in its assets but there is either no desire to sell it as a going concern or no real market for it. In these circumstances, a Members’ Voluntary Liquidation allows shareholders to extract the value they have worked so hard to put into the Company. HMRC require that the Company is being closed for a genuine reason to benefit from the distributions as capital and therefore have a Targeted Anti Avoidance Rule linked to MVLs. It is important that Companies exploring MVLs are therefore closing down for genuine business reasons and not solely for the tax benefits.

If your Company is suffering financial difficulties and creditor pressure is mounting it is important that you take positive action as soon as possible. Whether you are hoping to rescue some or all of your underlying business or simply want to walk away in a controlled and straightforward manner, placing your Company into Creditors’ Voluntary Liquidation is usually the best course of action.

By placing your Company into Creditors’ Voluntary Liquidation, you appoint an Insolvency Practitioner of your choice. This means that you have the opportunity to speak to the Insolvency Practitioner about your Company and its financial affairs before the Liquidation process even begins so can make sure you know exactly how the process will work and what to expect.

At which the Directors agree to seek a resolution from Shareholders to place the Company into MVL and to swear a Declaration of Solvency.

This includes a statement of the Company’s assets and liabilities and a sworn statement from the majority of the Directors that the Company’s will be able to pay all of its debts within 12 months.

At which point the Company is formally placed into Members’ Voluntary Liquidation, the Liquidator is appointed and any additional resolutions are passed such as to all assets to be distributed to shareholders without first being sold to generate cash.  This is typically done by written resolution but can also be done a shareholders’ meeting.

Once the Company is in Members’ Voluntary Liquidation, we will realise any assets that need to be sold and will pay off any remaining Company debts.  When this has been done, we will then distribute any remaining funds and assets to shareholders in accordance with their shareholding and the resolutions passed by the shareholders (less our agreed fee of course).

Distributions to shareholders can be made as quickly as 4 weeks from the date of the shareholders’ meeting subject to obtaining the necessary tax clearances and indemnities.

When all of the distributions have been completed, we will issue a final report.  The Company is formally dissolved at Companies House 3 months after the final report has been issued.

MVL has the following key benefits:

• Payments to shareholders as dividends are normally treated as income taxed at 8.75% in the basic rate band, 33.75% in the higher rate band and 39.35% if additional rate.
• However, distributions in an MVL are treated as distributions of capital and as such attract tax at 24%.  You can also use your annual tax free capital gains tax allowance.
• As distributions in an MVL are treated as capital you may be eligible for Business Asset Disposal Relief. This reduces the tax payable to 10% on all distributions up to £1 million lifetime allowance, 14% from 6 April 2025. This represents a material tax saving for shareholders.
• The technical process of winding up the Company’s affairs and removing it from the register is completed by an experienced professional thus freeing you from the responsibility of meeting the stringent dissolution criteria.
• The whole process can usually be completed within a few months with payments to shareholders made as soon as funds allow. We can also distribute physical assets back to shareholders should they wish rather than having to sell all of the assets.

It should be noted that in order to qualify for Business Asset Disposal Relief you will not be able to trade in the same business for a period of 2 years after obtaining the relief and personal legal advice should be sought in connection to the Targeted Anti Avoidance Rules mentioned earlier.

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