- Licenced Business Rescue Experts
- Helping Directors in Debt
- Same Day Advice
For free expert advice, send us a message and we’ll be in touch
A Simple Guide to Members Voluntary Liquidation (MVL)
The purpose of a members’ voluntary liquidation (MVL) is to wind up a solvent limited company and to distribute the assets to the shareholders as capital rather than income, therefore incurring preferential personal tax rates.
Understandably, shareholders are often keen for such distributions and company dissolution to take place as soon as possible following the appointment of an insolvency practitioner (IP). We examine how long this typically takes, what needs to happen to enable this, and how accountants and company directors can help to speed this process up.
Table of Contents
- What is an MVL?
- Why is an MVL used?
- When to use an MVL
- How does an MVL work?
- How long does an MVL take?
- How much does an MVL cost?
- Benefits of an MVL
- MVL vs CVL
What is Members’ Voluntary Liquidation?
MVL stands for Members Voluntary Liquidation. 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.
An MVL involves members of a company and their appointed Insolvency Practitioner (IP). The company in question will be dissolved following the completion of the MVL. During this, the IP will first settle outstanding debts, legal disputes and pay creditors through profits and the sale of assets. The remaining funds will then be distributed to the members.
MVL’s are often favoured as they can provide taxation benefits, such as capital gains tax being enabled rather than income tax. In some cases, some members may qualify for Business Asset Disposal Relief (formally known as Entrepreneurs Relief), which can reduce the tax rate down to 10%.
What is a ‘member’?
A member is effectively a shareholder of a company. They have a say in regards to business management and are classed as a part of the company. Members have to be in agreement with a formal insolvency process, such as an MVL, before one goes ahead.
Why is an MVL used?
Whilst the MVL 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.
When a company has cash or asset reserves – after all creditors have been repaid in full – totalling more than £25,000, it is more tax efficient to place the company into an MVL. 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%.
When to use an MVL
An MVL can only be used when a company is still solvent and able to meet any contractual obligations and/or debts, and clear any legal disputes. The company’s affairs must be in order and all documents must be ready for the insolvency practitioner when the MVL proceedings start.
There are a few reasons as to why members propose that a company is liquidated when it is still solvent, such as:
- Business owners wish to retire and may have nobody to pass the company over to
- Business owners may want to start a new venture
- The company may have fulfilled its purpose or completed a contract
- The company may be redundant or unnecessary due to external changes
How does an MVL 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. Ultimately, the MVL process involves the shareholders of a company passing the necessary resolutions to appoint a Liquidator.
The process for placing a company into an MVL can be simple and requires 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.
The MVL process
Information required by the Insolvency Practitioner-
Directors, shareholders and company accountants will be provided with an information request list once the IP has been engaged to assist with carrying out the liquidation process.
This will include things such as:
- HMRC references
- Details of assets and liabilities
- Bank details
- Identification documents
Declaration of solvency
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.
This means that the company agrees that they can repay their debts within the following 12 months. The company needs to be able to repay creditors within this time to ensure that they remain solvent throughout the MVL process, or face severe interruptions.
Appointment of a Liquidator
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.
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. 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 their 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.
Winding Up the company
Once the MVL is passed, through an agreement of 75%, in value, of the members/shareholders, the company is wound up. This includes:
- The Liquidator advertising 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.
- Company assets are sold by the liquidator.
- All relevant paperwork is completed to conclude the company’s business proceedings.
- The company is removed from the official register of companies.
The Liquidator also has the power to distribute any assets that are in a form other than cash to the shareholders ‘in specie’. This means that assets such as property and land will be given a monetary value after being assessed and a fair distribution is provided amongst the shareholders.
Once all assets have been realised and distributed, the IP/Liquidator will obtain clearance from HMRC to take the steps to close the MVL process and ultimately, the company will be dissolved.
How long does a MVL take?
Assuming that all liabilities have been settled prior to the appointment of an IP and all required information provided, distribution of company assets to shareholders can take place in as soon as 21 days (the minimum time given for creditors to submit claims following liquidation).
The time estimated for case closure and subsequent dissolution is more uncertain however, as it is dependent upon HMRC clearance. As a guide, we have historically estimated 3 months from appointment, but recently it has taken longer.
How to speed up the MVL process
The liquidation process, including asset distribution and closure, will run more smoothly if the following has taken place prior to the appointment of an IP:
- Information request list answered in full;
- All HMRC returns and liabilities have been calculated, submitted, and paid;
- All other liabilities settled;
- Appointment with solicitor arranged to swear declaration of solvency;
- Company Bank balance transferred to IP’s client account following engagement (this is because banks can take months to process a transfer once notified of the liquidation).
To find out more about the liquidation process in general, take a look at our liquidation advice online.
How much does an MVL cost?
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. Fees separate to the Liquidators fee could include payment to advertise in The Gazette and applicable VAT.
The fees involved in an MVL will be communicated to you effectively and honestly by the appointed Liquidator- appointing an insolvency practitioner from The Insolvency Experts to do this will ensure that fees are always transparent where possible.
Benefits of an MVL
There are many benefits of an MVL for limited companies. These include:
- 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
MVL or CVL?
The main difference between an MVL and a CVL is that for an MVL to occur, the company must be solvent. In a CVL, the company is insolvent. Both of these processes are entered into voluntarily; one by the company’s own members and the other by the company’s creditors. Due to this, the distribution of funds also goes to different places.
In an MVL, the funds left from the sale of assets and company profit will go firstly to paying off any outstanding creditor debts, then the rest of the funds are distributed amongst shareholders/members. In a CVL, the funds gathered by the insolvency practitioner will be distributed amongst creditors immediately, as a whole.
In essence, an MVL is designed to help company members and owners to liquidate a solvent company whilst retaining funds where possible, through sales of assets and tax reliefs. A CVL aims to protect creditors and serves to provide the creditors with monies owed and help to recoup losses.
For more information on the costs of an MVL, the timescales involved or any other questions related to whether a Members’ Voluntary Liquidation is the best option for you, please contact us today.
The Insolvency Experts have extensive experience dealing with MVL’s 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 01204 208 158.