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Members’ Voluntary Liquidation
As you consider different options for a company in financial difficulty, it may be that the best option you is a Members’ Voluntary Liquidation, also referred to as an MVL.
An MVL is appropriate where a company either has no liabilities, or sufficient assets to meet all of its liabilities in full, within a 12 month period.
How does the MVL process work?
The MVL process is often utilised by shareholders who have built up sufficient reserves within their business, and no longer require use of the company.
Whilst the process enables the company to be wound down and closed properly, providing the appropriate criteria of HMRC is met, there are a range of potentially significant tax advantages that a Members’ Voluntary Liquidation can provide for shareholders.
In the event that 90% of shareholders are in agreement, the MVL process can be dealt with very quickly, as formal notice to shareholders can be waived.
Ultimately, the Members’ Voluntary Liquidation process involves the shareholders of a company passing the necessary resolutions to appoint a Liquidator.
Prior to these resolutions being passed, a Declaration of Solvency must be prepared and sworn in the presence of a solicitor. The Declaration of Solvency is essentially an up to date statement of assets and liabilities, in which the solvency of the company is demonstrated.
In cases where there are more than one director, all or a majority of them will need to sign the document.
When signing, the directors are confirming that to the best of their knowledge, the company is able to pay its debts in full, plus statutory interest, within 12 months.
Following the Declaration of Solvency being sworn, meetings are held with the shareholders, at which the necessary resolutions are passed, and the appointment of a Liquidator confirmed.
How does an MVL proceed once a Liquidator is confirmed?
Once appointed, the Liquidator will need to advertise the appointment in the London Gazette, inviting any persons who believe they have a claim against the company to submit details to them in writing within 21 days.
If creditor claims are received, these will need to be dealt with by the Liquidator, and settled if appropriate.
However, if no claims are received, the Liquidator can proceed to make a distribution to shareholders, shortly after the notice for claims expiring.
Where shareholders are not intending to be involved within a similar activity in the next two years, it is likely that they will be able to take advantage of Entrepreneur’s Relief, and therefore the distributions received would be treated as capital, and subject to tax at only 10%.
The Liquidator also has the power to distribute any assets that are in a form other than cash, to the shareholders “in specie”.
Once all assets have been realised and distributed, we will obtain clearance from HMRC to take steps to close the MVL process, and ultimately the company will be dissolved.
What are the benefits of a Members’ Voluntary Liquidation?
- Members’ Voluntary Liquidation can be done quickly
- Huge tax advantages to shareholders
- Ensures the company is closed appropriately by an independent Liquidator
- The Liquidator has the power to deal with any problematic creditor claims
- Shareholders may be in a position to receive distributions quickly
How do I move forward with a Members’ Voluntary Liquidation?
For more information on the costs of an MVL, the timescales involved, or any other question related to whether a Members’ Voluntary Liquidation is the best option for you, please contact us today. You can get in touch by phone on 0300 303 8284, or if you prefer you can use our online contact form and we’ll get back in touch with you shortly.
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