If you no longer need your company because of retirement or going into employment, a Members’ Voluntary Liquidation (MVL) could be the best way to close down your company.
What is an MVL?
A Members’ Voluntary Liquidation (MVL) is a formal insolvency procedure carried out by a licenced insolvency practitioner (IP). The company must be solvent and therefore, must be able to pay all creditors in full. After payment of all creditors, the company’s reserves are distributed by the liquidator to the company’s shareholders.
How could an MVL be better than striking off a company?
Companies with reserves in excess of £25,000 must go through a formal MVL in order for the distribution to be accounted for as a capital distribution.
As well as the potential of a lower tax rate on a capital distribution when compared to income, shareholders can potentially benefit from Entrepreneurs’ Relief resulting in an even greater tax saving. However, it should be noted that if you are involved in a similar trade or activity within 2 years of receiving the distribution from the liquidator, the distribution may not count as a capital distribution and Entrepreneurs’ Relief may not be available.
Once the MVL has been completed, the company will be dissolved and in most cases cannot then be restored to the registrar of companies whereas if a company has been simply struck off, a creditor can apply for its restoration up to 20 years after. As such and given a liquidator will advertise for claims and ensure all tax matters are resolved, an MVL can provide peace of mind and minimise the risk of subsequent issues.
Though an MVL will cost more than simply striking off a company, as discussed above this could be mitigated by the potential tax savings. The tax implications should be discussed with your accountant prior to commencing the MVL procedure.
Procedure and time scale
After the company has ceased to trade, where possible all creditors should be paid, in order to make the position as clean as possible.
An MVL is initiated by the director(s) instructing an IP. From that point onwards there is very little the director(s) need to do. The IP will prepare all the necessary notices, forms and documents including a Declaration of Solvency.
A Declaration of Solvency shows the financial position of the company usually at the date of the liquidation, thereby proving that the company is in fact solvent and an MVL is appropriate. This document must be sworn by the majority of the directors before a solicitor or commissioner of oaths.
The time between the director(s) contacting an IP to the time the company is placed into liquidation can be as quick as 1 week, providing all information is supplied in a timely manner, however, it would usually be between 2 and 3 weeks. Once in liquidation, if an indemnity is provided to the liquidator, most of the distributable reserves can be immediately distributed to the shareholder(s). The liquidator would usually keep some funds as a provision for any outstanding taxes and any unexpected claims. The liquidator is required to advertise the liquidation and request creditors submit their claims.
Once all tax returns to the date of the liquidation are prepared, submitted and any outstanding tax is paid, tax clearance would be sought from HM Revenue & Customs. Once tax clearance is obtained (usually within 12 weeks of the request) the remaining funds can be distributed and the liquidation finalised. If required and applicable, physical assets or shares in a subsidiary can be distributed in specie (i.e. as is) to the shareholder(s).
Tax advice should be sought from your accountant prior to commencing a MVL as the IP will only attend to the company’s tax affairs and not the shareholders tax affairs.
ARC Insolvency Limited
ARC Insolvency Limited charge a fixed fee from £2,000 + VAT and disbursements, for an MVL. This does not include the cost of preparing any tax returns, which would usually be prepared by the company’s accountant.
ARC Insolvency will work with you and your accountant through the whole procedure, from cradle to grave, to ensure that your time and input is kept to a minimal.
For further information please contact ARC Insolvency on 020 8150 3730 or via email: firstname.lastname@example.org.