Members Voluntary Liquidation – A Solvent 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 including interest within a period not exceeding 12 months.
Click here to see our guide to Members Voluntary Liquidations.
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. In addition, MVL’s might also be eligible for Business Asset Disposal Relief (formerly known as Entrepreneurs’ Relief).
This has been an attractive and popular method of reducing the amount of Capital Gains Tax that must be paid on the sale of a solvent company and/or its assets, from the standard rate to a 10% rate. It can save business owners many £000s. However, in recent years, the Government has reduced the value of this benefit.
Udobi Nzelu explains things in this video:
Our teams in London, Bournemouth, Brentwood, Croydon, Reading/Thames Valley, Salisbury, South West & Wales and The Cotswolds have worked on many successful MVLs, including those 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.
A Change in Corporation Tax Payments for Members Voluntary Liquidations
HMRC announced a change in policy in Autumn 2017 when dealing with corporation tax payments in Members Voluntary Liquidations, which features statutory interest at 8% per annum. It seems that recent case law has provided another opportunity to squeeze a bit more tax out of those business owners looking to extract their accumulated profits using an MVL. Click here for advice and the full story.
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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 following detailed discussions with you.
If the figures do not provide 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 are potentially treated as capital and under the Entrepreneurs Relief Scheme a personal tax rate of as little as 10% could be enjoyed.
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.
We would always recommend tax advice be taken when considering a Members Voluntary Liquidation and we are happy to work with your existing advisers or introduce suitable alternative advisers should you prefer this.
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 in London on 0208 088 0633 if you would like to discuss a Members Voluntary Liquidation in more detail. FREE initial discussion. Click here to see some case studies and testimonials.