A Members Voluntary Liquidation (MVL) is the formal process entered into to wind up the affairs of a solvent company. A solvent company is one that has more assets than liabilities and can therefore pay off all its debts.
What happens during an MVL?
As a result of changes in the tax legislation, when a company has cash or asset reserves, after all creditors have been repaid in full totalling more than £25,000, it is now more tax efficient for shareholders to place the company into MVL when they want to bring the company to an end and take these funds. The reason for this is that an MVL will usually allow the distribution to the shareholders by the liquidator to be treated as a “capital” payment. Tax is charged at a rate of 10% as opposed to shareholders just drawing the monies as a dividend which will be treated as “income” for tax purposes and therefore chargeable at anything up to 50%. A liquidator can also distribute assets as well as cash if the shareholders are in agreement and a fair value is placed upon the asset. A common distribution of this type would be in relation to the business premises. The process for placing a company into MVL is very simple and usually requires only the consent of 75% in value of the shareholders to agree. It is usually recommended by the company accountants who will deal with the final tax returns and should be completed with the dissolution of the company within 12 months. Creditors are entitled to receive statutory interest at a rate of 8% above base from the time the company is placed into MVL until the liquidator pays the debts and as such it is usual advice for the company to pay off its creditors prior to the appointment of the liquidator to save this interest. Immediately upon his appointment a liquidator will advertise for additional claims giving creditors a minimum of 21 days to provide details, after which a distribution can be made to the shareholders. Depending upon the level of work required to be done by the appointed liquidator, fees usually range from £3,000 plus VAT and disbursements upwards.
Contact The Insolvency Experts
The Insolvency Experts have extensive experience dealing with MVLs and can provide professional support and advice. Get in touch with our team today if your business is facing financial difficulties as we can help. Contact us online or call our team directly on 0300 303 8284.