A Members’ Voluntary Liquidation (MVL) takes place when a solvent company closes. Its assets are realised and its funds are distributed amongst shareholders in a tax-efficient manner.
There are many factors to take into consideration if you are considering an MVL. In this guide Clarke Bell outlines what a Members’ Voluntary Liquidation involves. How you can prepare for one, to help you get the best outcome out of an MVL in 2021.
What is a Members’ Voluntary Liquidation and how does it work?
A Members’ Voluntary Liquidation is a legal process that winds-up a solvent company in a tax-efficient manner.
This is a completely voluntary process initiated by company directors and only companies that are solvent can undergo the process.
What is the difference between an MVL and other forms of liquidation?
As well as Members’ Voluntary Liquidation, there are other forms of liquidation including Creditors’ Voluntary Liquidation (CVL) and Compulsory Liquidation. So, what are the differences?
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Whereas a Members’ Voluntary Liquidation is available only to solvent companies, both Creditors’ Voluntary Liquidation and Compulsory Liquidation are options available only to insolvent companies – i.e. ones which cannot pay their bills, cover their daily costs or have liabilities that outweigh their assets.
Like an MVL, a Creditors’ Voluntary Liquidation is a voluntary process initiated by the company directors and carried out by an Insolvency Practitioner who they have appointed. In the CVL process, the insolvent company in placed into liquidation and it ceases to trade.
The other form of liquidation is compulsory liquidation. This is a process that forces an insolvent company to close and is the most serious form of liquidation. The process is initiated by creditors who are owed money over the sum of £750 and have had several repayment demands which have been unfulfilled. A winding-up petition is issued to the court which then appoints an Insolvency Practitioner to close the company. As the name suggests, this is not a voluntary process and is forced upon the company.
Why choose an MVL?
A Members’ Voluntary Liquidation is a route taken by thousands of company directors and there are several reasons you might decide the time is right to put your company through the MVL process, including:
- Taking up a PAYE-role
- Moving abroad
- You are retiring
An MVL offers many advantages to company directors.
One advantage of an MVL is that it lets a director quickly close their business and free up funds. What’s more, this is a completely voluntary process and will only be started when the time is right for the director.
However, perhaps the main advantage of an MVL is that it allows a director to close their company in a tax-efficient way. This is because any funds taken out of the business through an MVL are subject to Capital Gains Tax which is set at 10%, rather than Income Tax which is set at 18% or 28% at the higher level.
On top of this, there are further tax benefits for shareholders of the company who are eligible for Business Asset Disposal Relief, formerly known as Entrepreneur’s Relief until 6th April 2020.
This allows a director to sell all or part of their business and pay just 10% in Capital Gains Tax on profits over the lifetime of the business up to a limit of £1 million. This can save directors a small fortune on their tax bill and is one reason many choose to close their company with an MVL.
How can I prepare for Members’ Voluntary Liquidation?
If you have decided that now is the right time to put your company into Members’ Voluntary Liquidation, there are a few things you can do to make the process a little bit easier. This includes:
- Arrange the sale of remaining stock and assets: by organising to sell remaining stock or assets your business might still have, you lessen the work needed to liquidate your company.
- Settle any outstanding debts or liabilities: likewise, by settling remaining debts or liabilities your company holds, you can simplify the MVL procedure.
- Settle your directors’ loan account: it’s always a good idea to look at your company’s directors loan account to assess whether you owe the company money, or whether the company owes one of the directors any money. By setting any outstanding liabilities here you can make the MVL process simpler.
The next step should be to appoint a licensed Insolvency Practitioner (IP.) This is a legal requirement and the MVL cannot be undertaken without an IP.
As the professional that will coordinate and oversee the process, it is important that you choose an Insolvency Practitioner who will get the best possible outcome for you.
To find the best Insolvency Practitioner, there are a few key factors to look out for:
- Ensure they are fully licensed and qualified, otherwise the process cannot legally be carried out
- Make sure the IP has expertise in your industry or with similar cases to yours, to ensure they are equipped to offer the best advice possible
- Ensure the IP is well-established, with a good reputation and charges reasonable fees
Ready to find out more about how Clarke Bell can help?
If you have made the decision to put your company into Members’ Voluntary Liquidation in 2021, Clarke Bell is here to help close your company in the most tax-effective way.
We have a range of categories for our Members’ Voluntary Liquidation, meaning that we can help you close down your solvent company with MVL, whatever your situation. Our prices are affordable and we make distributions to shareholders quickly, so you know you’re in good hands.