Often referred to as a solvent winding-up, the members’ voluntary liquidation process (or ‘MVL’) requires that creditors be paid in full, together with interest at the official rate.
An MVL provides a method for eliminating a company, distributing the remaining assets after payment of all creditors, leaving no outstanding matters for the directors and shareholders. The procedure can be used in a number of circumstances, such as:
- to unlock the value of the underlying business;
- the departure or retirement of the directors/shareholders in the absence of succession plans;
- the restructuring of a company or group of companies (which may involve an additional procedure called a ‘Section 110 arrangement’);to tidy up a corporate group containing dormant and unwanted subsidiaries
It requires the directors to swear a declaration of solvency to the effect they have made a full inquiry into the company’s affairs and confirming that creditors will be paid in full, together with interest at the official rate, within 12 months.
An MVL is the preferred method where a company has distributable reserves of over £25,000 or an uncertain corporate history. It is often favoured by directors as there is a robust due diligence process and once the company ceases to exist, there is no recourse to shareholders or directors.
MVLs provide a potentially tax efficient exit route for shareholders, particularly if they qualify for Entrepreneurs’ Relief in which case the CGT rate on individual members’ capital receipts is just 10%.
Tax and other considerations
It is essential that robust investigation and planning is undertaken in advance.
Enquiries should be made into the company’s assets and liabilities, ensuring all actual and contingent liabilities are identified. This may include a review of property leases, guarantees and warranties given by the company, bank security arrangements along with employment contracts and pension schemes.
Where appropriate, our tax and VAT specialists work with you to ensure any pre-elimination restructuring is tax-efficient and does not give rise to any unintended tax charges or loss of reliefs.
Formal clearance must be obtained from HMRC prior to dissolution to the effect that there are no outstanding liabilities and all filing obligations have been met.
As part of our initial review, we will also advise of alternative options such as voluntary strike-off with or without a capital reduction.
For more information, please contact Mike Finch