Solvent Liquidation – Members Voluntary Liquidation
A solvent liquidation is known as a Members Voluntary Liquidation (MVL). Here a liquidator is appointed by the shareholders and the company’s assets are sufficient to settle all its debts within a period not exceeding 12 months.
MVLs may be used for purposes of reorganisation, for tax reasons or in the case of owner-managed businesses to enable the shareholders to realise their interest in the company when they do not have succession plans.
We have worked with a number of leading institutions who have had dormant subsidiaries which required winding up, including: Equity & Law, Downing Corporate Finance, Rathbones and Collins Stewart.
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Members Voluntary Liquidation and the Declaration of Solvency
As a solvent declaration, an MVL requires a Declaration of Solvency, which is a statement by the directors that says there are sufficient realisable assets for the company to pay off:
- All of its liabilities
- The cost of the liquidation process
- Any statutory interest on all creditor balances
It is a legally binding document that we will work with you to prepare, along with a Statement of Affairs, following detailed discussions with you.
If the figures do not produce evidence to support a declaration of Solvency, we would recommend an alternative procedure. This would normally be a Creditors Voluntary Liquidation.
The Tax Efficiency of a Members Voluntary Liquidation
A Members Voluntary Liquidation is a tax efficient process used to distribute funds of a solvent company which is no longer trading via capital gains tax (CGT) rather than as dividends.
A Members Voluntary Liquidation is a method in which, if certain requirements are met, reserves derived from profits up to £25,000 are treated as capital. Distributions in excess of £25,000 have to be treated as income. It has been suggested that this change was in part due to the lower rates of Capital Gains Tax in force and the benefits of Entrepreneurs relief.
Under the previous method of distributing such funds, HMRC allowed funds derived from profits to be distributed under ESC C16 (Extra Statutory Concession 16). Since the removal of ESC C16 owners of many limited companies with distributable reserves in excess of £25,000 should look at the Members Voluntary Liquidation option. They are required to take this route if a capital distribution is required.
Other Benefits of a Members Voluntary Liquidation
There are other benefits of going the Members Voluntary Liquidation route. For example:
- Companies which have taken the dissolution or strike off option can only do so under certain conditions which if a third party believes have not been met can apply to have the company placed back on the register. This application can be made within 6 years of dissolution
- The cost of an MVL is dependent on the size and complexity but a simple case is inexpensive
Please contact us or call us on 0207 831 1234 if you would like to discuss a Members Voluntary Liquidation in more detail. Click here to see some case studies and testimonials.