Have you considered a Members’ Voluntary Liquidation? An overview of the six-step process

Members’ Voluntary Liquidation (MVL) is a process for solvent businesses which cannot be sold but need to be wound up. It is usually the most tax advantageous route to do this in a short period of time.

On the other hand, if you own a limited company and are looking towards retirement or wanting to exit your business, there are a number of options available to you. You may wish to sell your business to a third party or look at a management buy-out. If this is the case, we have a very good Corporate Finance Team to help you with this.

So, let’s dive into what a Members’ Voluntary Liquidation is and what you need to do leading up to the process.

What is a Members’ Voluntary Liquidation (MVL)?

An MVL is used to formally wind-up your limited company, to do this, you need to instruct a Licensed Insolvency Practitioner. They will assist you with all the required steps and distribute the Company’s assets to shareholders during the Liquidation process.

The MVL process

Step 1

The key to a Members’ Voluntary Liquidation process is to ensure that as much is lined up before the Stakeholder meeting (step 2) as possible. You should ensure:

• Trading has ceased
• All liabilities have been settled, as far as possible
• PAYE and VAT returns are up to date and de-registered
• Final corporation tax liabilities are calculated and paid on account
• Employees have been paid all entitlements and pension schemes are closed
• Consider selling any tangible assets, collect in refunds and book debts
• Try to only leave a cash balance

Step 2

The Members’ Voluntary Liquidation process officially starts with a Board meeting. Directors will resolve to put forward resolutions to shareholders, including to formerly Liquidate the Company. A majority of the Directors will then be required to affirm or swear a Declaration of Solvency. This will include details of the estimated assets, liabilities, costs, and any interest due.

The Company is formerly placed into Liquidation at the Stakeholders meeting. Typically, at least 14 days’ notice is required. However, this is often waived with the agreement of at least 90% of shareholders. It is therefore very common with owner-managed businesses to hold the Board Meeting, swear the Declaration of Solvency, and place the Company into Liquidation at the Shareholders meeting in the space of a morning.

Step 3

Once the Company is in Liquidation, the Liquidator will need to do four things. The first is to place three adverts in the London Gazette and secondly, file Notices with Companies House.  The Liquidator will then need bond for the assets in the case and begin to seek clearances from HMRC.

Step 4

Your accountant will file a Return with HM Revenue & Customs for the final period up to the day before the Members’ Voluntary Liquidation date. Any liabilities will have been paid on account prior to the commencement of the MVL to avoid interest charges being applied.

Step 5

The Liquidator can also look to make an initial distribution to shareholders. This means the shareholders having the ‘lions share’ of the Company’s assets within the first 1-2 weeks of the Liquidation. This is often only distributed under an indemnity and where the affairs are reasonably tidy.

Where a freehold property remains in the company, this can be ‘distributed in specie’ to shareholders for the value’s worth. This also applies to any other ‘non-cash’ assets which would be a debtor or a director’s loan account. This means that the asset is not required to be sold and converted into cash. In the case where a freehold property is distributed, solicitors will be required to draft the required transfer forms and filing with Land Registry.

All distributions to shareholders in a Members’ Voluntary Liquidation are treated as capital distributions with the tax point being the date of distribution. Where shareholders qualify for Business Asset Disposal Relief, you would benefit from a capital gains rate of 10% on the distributions, up to £1 million lifetime allowance. If you compare this against closing a company and taking an income distribution, you can quickly see the large tax saving which can be made.

Step 6

Once final tax clearances have been received, the Liquidator will look to distribute any residual funds and issue a final report to shareholders. At the end of the process, the Liquidator files the report at Companies House. The Company is then dissolved 3 months later. Records can then be destroyed 12 months after dissolution.

Are you considering the Members’ Voluntary Liquidation process?

Are you considering exiting your business through the Members’ Voluntary Liquidation process? If so, please do not hesitate to get in contact with one of the Business Recovery & Insolvency team here at Westcotts. Simply call 01392 288555 for expert professional advice and competitive quotes.