Any company that is solvent can apply for a Members’ Voluntary Liquidation. This is a formal process that will wind-up a company and bring it to a close.
There are many reasons a company director may choose to close their company through a Members’ Voluntary Liquidation, whether they are retiring, moving abroad or merely looking to close their business in a tax-efficient way.
If you find yourself in a similar position and want to know how a Members’ Voluntary Liquidation works, Clarke Bell has put together this complete guide on MVLs, from how the process works, what the main benefits are to how long it will take.
What is a Members’ Voluntary Liquidation?
Members’ Voluntary Liquidation (MVL) is a legal process that brings a solvent company to a close.
Unlike with a Compulsory Voluntary Liquidation or a Creditors’ Voluntary Liquidation which are only routes that can be taken by insolvent companies, a Members’ Voluntary Liquidation is only available to solvent companies. This means only those companies that can pay their day-to-day costs and typically have assets over £25,000.
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When applying for a Members’ Voluntary Liquidation, the company directors must declare that the company is:
- Solvent: meaning it can pay its bills and daily costs
- Can pay all its creditors
- Can pay all its taxes
- Can meet any contractual obligations
When can a Members’ Voluntary Liquidation occur?
Members’ Voluntary Liquidation may occur when a company wishes to voluntarily close in a tax-efficient way.
This is typically because the director has decided to take a step back, perhaps to take on an employee role, retire altogether or is looking to discontinue and liquidate a particular arm of their business, despite the fact the company is solvent and sustainable.
How does a Members’ Voluntary Liquidation work?
Once the company director is sure they will meet the criteria outlined above, they will then need to call a meeting with company shareholders.
Next, a licensed Insolvency Practitioner will need to be appointed to oversee and carry out the process. As a formal procedure, this is a legal requirement.
The Insolvency Practitioner will release the company’s assets, settle any legal disputes, pay creditors any outstanding amounts and distribute the remaining funds amongst shareholders.
Being heavily involved in the liquidation process, it is important to work with the right Insolvency Practitioner for your needs. For help finding the perfect match, check out our guide on what you need to know before choosing an Insolvency Practitioner.
Members’ Voluntary Liquidation vs Creditors’ Voluntary Liquidation
Many companies that go into liquidation are insolvent, meaning it is no longer feasible for them to keep going. In this case, the directors and stakeholders will place the company into Creditors’ Voluntary Liquidation.
On the other hand, although Members’ Voluntary Liquidation is also a voluntary process, this is only an option available to those companies that are solvent. This is the main difference between a Members’ Voluntary Liquidation and a Creditors’ Voluntary Liquidation.
There is also a third route – Compulsory Liquidation. As the name suggests, this is when a company is forced to liquidate by its creditors. This occurs when a company can no longer afford to pay its bills, settle its debts and a creditor has taken legal action to retrieve payment for what they are owed.
For more information on the differences between Compulsory and Voluntary Liquidation, check out our guide.
What are the benefits of a Members’ Voluntary Liquidation?
The main benefit and one of the biggest advantages of closing your solvent company through liquidation is that it is an HMRC approved, tax-efficient way of winding-up a business.
By closing your company through a Members’ Voluntary Liquidation, any funds taken out are subject to Capital Gains Tax rather than Income Tax. Furthermore, there are additional tax advantages for companies that qualify for Business Asset Disposal Relief (otherwise known as Entrepreneurs’ Relief before 6th April 2020.)
With Business Asset Disposal Relief, eligible entrepreneurs selling all or part of their business will pay just 10% in Capital Gains Tax on profits over the lifetime of their business up to a limit of £1 million.
This is significantly less than the level of income tax you would otherwise be charged which stands at 18% for the basic level and 28% for the higher rate.
Clearly, this is a great, tax-efficient way of closing a business as the funds distributed are subject to Capital Gains Tax. This is a completely voluntary way of liquidating a company and will quickly free up money from the business.
How long does Members’ Voluntary Liquidation take?
Although the overall timeframe of a Members’ Voluntary Liquidation will vary from case to case, it is usually a quick way to close a business and free up funds.
In fact, at Clarke Bell, we aim to distribute the assets of the company after 35 days from the date of Liquidation.
How much does a Members’ Voluntary Liquidation cost?
Clarke Bell’s standard cost for a Members’ Voluntary Liquidation is from £995 + VAT. You can easily get in touch with a member of our team for a quote.
See how Clarke Bell can help you
If you have concluded that Members’ Voluntary Liquidation is the best next step for your business, why not get in touch with Clarke Bell to see how we can help you?
We work with you closely to discuss your situation and find the best solution going forward.
We have a range of categories for our Members’ Voluntary Liquidation service, meaning we can help close your solvent company whatever your situation is.
We have been trading for more than 28 years, in which time we’ve helped thousands of company owners with the liquidation process with our expert insolvency advice. In fact, Clarke Bell has put more than 2,000 companies through the MVL process and distributed more than £300 million to shareholders.
