When to use a Members' Voluntary Liquidation to close a company

What is an MVL?

To go through an MVL, a company must be considered financially healthy and capable of paying off its debts within 12 months.

The directors of the company appoint a liquidator, who must be a licensed insolvency practitioner, to oversee the MVL process and make sure the company’s affairs are closed in compliance with legal requirements.

During the MVL the solvent company pays off its debts in full and the remaining assets are distributed fairly to shareholders in line with their shareholdings.

How is an MVL different from other types of liquidation?

An MVL differs from other types of liquidation in a few important ways. In an MVL:

• The liquidation is initiated voluntarily by the directors while the company is still solvent, rather than being forced due to financial difficulties or insolvency.
• Assets are sold off to pay creditors in full, rather than giving creditors a 'pence in the pound' offer that is often much less than is owed due to the debtor’s insolvency.
• The focus is on the fair distribution of capital to shareholders rather than creditors, unlike during a Creditors’ Voluntary Liquidation (CVL).

When can an MVL be used to close a company?

An MVL can be used to close a solvent company when the directors are legitimately able to make a statutory declaration of solvency. If made fraudulently, the directors may be liable to fines or prosecution.

If your client’s company is able to take each of the following steps, an MVL could be the right choice:

• The company can pay its debts in full within 12 months of the start of the MVL process. This includes current and contingent debt and any future financial obligations.
• The company directors can make a sworn statement confirming the company's solvency. This statutory declaration of solvency must be made within five weeks of the winding-up resolution being passed.
• The declaration can truthfully state that the company directors have made a full inquiry into the company's affairs and they believe the company will be able to pay its debts within 12 months of the start of the MVL.

Benefits of using an MVL

Tax advantages

One of the main benefits of an MVL is the potential tax advantage. With an MVL, any funds remaining after paying creditors can be distributed to shareholders as capital rather than income.

This means shareholders can pay Capital Gains Tax rather than Income Tax. This reduces shareholders’ tax obligations because Capital Gains Tax is set at a lower rate than Income Tax.

Most directors can also claim Business Asset Disposal Relief (previously known as Entrepreneurs’ Relief), which means they pay just 10 per cent tax on qualifying assets.

Low stress

The MVL is handled by a licensed insolvency practitioner with in-depth experience in managing the process from beginning to end.

This means it’s generally a faster and simpler process than if the company directors were to sell assets, distribute funds and close the company themselves. Instead, the insolvency practitioner guides the process, while your client focuses on closing down operations smoothly.

Legal safety

Licensed insolvency practitioners are fully qualified and experienced in company closure. We have specific steps we take to make sure the process is carried out correctly and legally.

We ensure that payments to creditors and shareholders are dealt with fairly and that the company is wound up following legal requirements.

Nothing is overlooked and at the end of the process, your clients can enjoy the full benefits of their efforts as directors and shareholders.

Is MVL right for your client’s company?

An MVL could be the best option for directors ready to close their solvent company with minimal stress and potential tax savings. FA Simms has been working with IFA accountants to do what’s best for their clients for over a decade, including guiding clients through an MVL. The FA Simms team organises the whole process, handles all the paperwork, and guides the company through each step.

If your client is considering closing their company and you want to know if liquidation is right for them, contact FA Simms: 

• T: 01455 555 444
• E: enquiries@fasimms.com

Richard Simms is Managing Director, FA Simms