When liquidating a company, using a cost-effective method is paramount. For solvent companies, it’s in the best interests of directors to be efficient in order to retain as much of their profits as possible. For insolvent companies, cost-effectiveness means paying off a larger portion of the company’s debt. Clearly, choosing the most cost-efficient method of liquidation is beneficial to everyone involved.
In this article, Clarke Bell will be your guide to the fees of the two most common liquidation procedures – Members’ Voluntary Liquidations (MVL) and Creditors’ Voluntary Liquidations (CVL). We will explain these procedures, the costs involved, and how they can affect you.
What is an MVL?
The MVL procedure is an option for directors looking to liquidate their solvent companies. It is a voluntary procedure, allowing directors to appoint a liquidator of their choice. This liquidator will take charge of the company, realising its assets, emptying its accounts, and distributing the proceeds amongst shareholders. Unlike other methods of closing a solvent company, these proceeds are subject to significant tax benefits, as we will discuss later. At the end of the procedure, the liquidator will wind up the company, having it removed from the register at Companies House. From this point, the company will cease to exist as a commercial entity, and its directors will be free to pursue other ventures.
The costs of an MVL
Several costs are associated with the MVL process. First, is the fee to your chosen insolvency practitioner. The fee charged varies depending on which insolvency practitioner you appoint. Some firms charge several thousands of pounds for an MVL. At Clarke Bell, our Members’ Voluntary Liquidation fees are from just £995 + VAT.
As well as the insolvency practitioner’s fee, there are a number of other costs – the disbursements – that need to be paid for. These are the cost of advertising three statutory notices in The Gazette, informing the public of your decision to liquidate your company; and the statutory bond which insolvency practitioners are required to obtain. The cost of the bond will be determined by the total value of your company’s assets. Your insolvency practitioner will be able to give you the precise costs of all of the associated disbursements.
Financial benefits of an MVL
One of the core benefits of the MVL procedure is the considerable tax savings. It does this through several means, the first of which is how the proceeds of the liquidation are classified. Under an MVL, proceeds are distributed amongst shareholders as dividends, which are classified as Capital distribution. This sees such dividends taxed under Capital Gains tax rates, resulting in a much lesser share of your retained profits going to the government.
Liquidating your company under an MVL also entitles you to apply for Business Asset Disposal Relief, formerly known as Entrepreneurs’ Relief. This relief, assuming you meet its criteria, will allow you to further reduce the tax you pay on your dividends. Potentially reducing your overall tax rate to as little as 10%. However, this relief has a lifetime limit of £1 million, and will not affect gains above this figure.
What is a CVL?
A CVL is a formal insolvency procedure for insolvent companies. Like the MVL procedure, a CVL is voluntary, allowing directors to enter into it of their own volition and appoint their preferred insolvency practitioner. This insolvency practitioner will assume the role of the liquidator. This means that they will take control of the company, with the directors relinquishing their powers over the company. The liquidator will then dispose of the company’s assets and empty its accounts. Using the proceeds to repay outstanding creditors and cover other liabilities. The company will then be wound up and stricken from the register at Companies House, ceasing as a commercial entity.
The costs of a CVL
The cost of a CVL is typically higher than an MVL. This is due to the complexities involved, including dealing with the company’s outstanding debts and employees.
Depending on the circumstances, the CVL fee can be paid for with the remaining assets in the company or by the directors personally.
While looking for the best people to help you with your company, you may encounter insolvency ‘advisors’ offering advice and help with liquidations. Such advisors are little more than an unneeded third-party, who are not able to execute any kind of insolvency procedure. They will merely connect you with someone who can. You are better off going straight to an insolvency practitioner.
At Clarke Bell, we prioritise affordability and quality, with our CVLs starting from just £1,995 +VAT.
Our team will work with you at a pace that suits you, and help you throughout the process.
Let Clarke Bell help you
If your company requires a liquidation procedure, Clarke Bell can help you. Whether it be an MVL (for a solvent company) or a CVL (for an insolvent company).
We have more than 28 years of experience in helping company directors through these processes, and we can do the same for you.
Contact us today for a free, no-obligation consultation and find out exactly what we can do for you.