A Members’ Voluntary Liquidation (MVL) is a procedure used to liquidate and close a solvent company. This is done for a variety of reasons; directors might find their company not profitable enough to continue operating, want to pursue new ventures, take up a PAYE-role (due to the IR35 / off-payroll rules) or retire. An MVL offers these directors a tax-efficient means of closing their company, ensuring they can extract as much of their retained profits as possible.
While this is a very effective strategy for closing a company, there are times when restructuring a company is the better option. For directors who would prefer this course of action, an MVL can be their ideal solution, too. For such directors, a restructuring MVL can be used to change the direction of their company, breathing new life into it.
In this article, Clarke Bell will discuss the restructuring MVL procedure, how it works, and why you might want to consider using one.
What is a restructuring MVL?
A restructuring MVL is an alternative use for the MVL procedure; rather than liquidating a company, it is instead used to divide it, making operations run more smoothly. Under a restructuring MVL, company directors can choose to split off parts of their company into subsidiaries, liquidating them separately from the main company. Assets can be sold as they normally would be under an MVL, or traded to other companies for shares. Directors can then choose to keep the rest of the company in operation. Conversely, directors could instead choose to liquidate the entire company, following the same procedure as you would using an MVL.
As a restructuring MVL specialises in splitting a company up to make it more manageable, company directors must first choose how the division will be executed, along with seeking permission from HMRC. Namely, directors must determine whether their company will be restructured using a partition or a demerger. Once the procedure has been decided and permission obtained, the restructuring can begin.
Using a restructuring MVL to perform a company partition
A company partition is a type of restructuring where shares are distributed depending on the transfer of assets. For example, if a company splits into multiple different entities, shareholders will consolidate their shares in the original company into one of these new entities. This marks a clear-cut line in ownership, with shareholders being split up as well as the company. As this is the case, a company partition is typically only used when disagreements between shareholders cannot be solved. A company partition can be used regardless of reason, whether the disagreements are due to creative differences or a clash of personalities damaging the effectiveness of the board. Whatever the reason, a company partition can be one method for resolving shareholder disputes.
Also Read: What Is Section 110 Scheme of Arrangement?
Using a restructuring MVL to perform a company demerger
A demerger is an alternative to a company partition, one that tends to be used to address profits rather than shareholder disputes. This procedure is used when directors want to split up a company into different entities, usually to separate the unprofitable parts of a company from the profitable ones. However, a demerger can also be employed to split off riskier parts of the company into their own entities, either because they risk dragging down the main company’s reputation, or because they might simply be unproven. It can also be used to create new entities for the sole purpose of being sold off, as part of the original company is no longer viable or useful.
During this procedure, a company will transfer some or all of its assets into the newly created entities. Unlike a company partition, shareholders will receive shares in both the original company and some of the newly created entities. As such, it’s a procedure best used when shareholders are on the same page.
Advantages to using a restructuring MVL
Naturally, a restructuring MVL can be quite beneficial to a company. Here are some advantages that could apply to your company:
- Flexibility – Using a restructuring MVL to perform a demerger for your company is much more flexible than going down the statutory route. You’ll retain more control over the process, in addition to a restructuring MVL being the more cost-effective method of performing a demerger.
- Creditor protections – As the procedure is carried out (by a licensed insolvency practitioner), any creditors will enjoy certain protections. Their interests will be prioritised, and losses kept to a minimum.
- Tax-efficient – As with the main MVL procedure, a restructuring MVL offers significant tax benefits. This will ensure that you will retain the vast majority of your profits if you intend to sell a large portion of your company and its assets. If you meet certain criteria, you may save even more.
- Effective for the sale of a company – If you aim to sell some or all of your company, a restructuring MVL can be quite useful. It can be used to reorganise your company into smaller parts, packaged up nicely for sale. Alternatively, you can split off part of your company to keep, selling the larger entity instead. Moreover, this procedure can also be used to demerge an investment business, while still keeping your original company independent.
Disadvantages of using a restructuring MVL
Although restructuring MVLs can be quite advantageous, they do have a few disadvantages to be aware of. These are:
- Stamp Duty Land Tax – If you use a restructuring MVL to partition your company, you will not be able to claim relief for Stamp Duty Land Tax using the procedure.
- Only for solvent companies – A restructuring MVL is an option only for solvent companies. Directors must confirm that their company is solvent. They can open themselves up to penalties if they knowingly attempt to use this procedure for a company which is insolvent.
- Cannot be used for new holding companies – If your company is a new holding company, you will not be able to use a restructuring MVL. This is due to complexity, owing to the wide range of factors that must be considered.
Clarke Bell can help
If you are considering liquidating or restructuring your company, Clarke Bell can help. We have more than 28 years of experience in helping companies find the best path forward for their situations, 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.