What is a Members’ Voluntary Liquidation (MVL)?
A MVL, or solvent liquidation, is a process set out within insolvency legislation which facilitates the wind down of solvent companies and allows shareholders to extract funds in the most tax efficient way.
Our experts at Ballard Business Recovery have many years’ experience assisting directors and shareholders in placing their company into a MVL process, always exceeding expectations and distributing funds to shareholders shortly following appointment.
FAQ’s relating to the MVL process
How quickly can the company be placed into MVL?
The answer to this question is going to be determined by how many directors and shareholders there are, and if they are all in agreement to place the company into MVL. If so, we pride ourselves on being able to act quickly and have successfully placed companies into MVL within 72 hours of initial contact. Sometimes the process may take a little longer if there are a number of parties that need to be consulted to obtain the up-to-date position, or if the company has any secured creditors who must be given advanced notification of the process.
Do all liabilities have to be settled before placing the company into MVL?
No. The duty of the liquidator, once appointed, is to realise the assets of the company and settle all liabilities in accordance with insolvency legislation. It is not uncommon for companies to be placed into a MVL with one or two liabilities outstanding. This will most likely be an outstanding tax liability that cannot be settled until your accountant has brought the tax returns up to date.
How quickly can shareholders expect to receive funds?
At the outset of our instruction we will agree the timing and quantum of distributions to the shareholders and work with you in order to meet those expectations. As long as a provision is made to cover outstanding liabilities and the agreed costs of the MVL process, we aim to distribute the majority of funds to shareholders within 7 days of appointment. We will work with you to ensure that this is possible. On some occasions, you may prefer the distribution to take place in the following tax year to benefit from further tax allowances. This is fine, and the distributions will be timed to your preference.
Why is the MVL process more tax efficient?
In the ordinary course of business, funds distributed to shareholders from a company are to be treated as income and taxed as such within your self-assessment tax return. In a MVL, all funds distributed are treated as a capital distribution and will be taxed at the applicable capital gains tax rates dictated by HMRC. These rates will always be lower than your income tax rates.
Furthermore, depending upon your personal circumstances, you may be able to apply Entrepreneur’s relief on the distributions which will mean you are only liable to pay 10% tax.
How much does the process cost?
At the outset of our instruction we will provide you with a quote that covers the assistance provided to you in placing the company into MVL and for the liquidator administering the MVL process. The quote will be dependent upon the circumstances of the company but the cost will typically range from £3k to £5k plus disbursements and VAT.
If you would like an instant MVL quote to fit the circumstances of your business, please use our bespoke MVL quote tool by clicking the link at the top of our website.
If the company is placed into ‘liquidation’, will this affect my credit score or ability to lend in the future?
No, there should be no impact on your credit score and if the matter is ever raised (by a mortgage company, for example) you simply have to point them to the fact that it was a solvent liquidation process used to close down a successful company. Be assured that all major credit agencies and lenders fully recognise this.
When we are appointed as liquidators we must notify Companies House and place an advertisement in the London Gazette. These are public records and will clearly show that the company is in Members’ Voluntary Liquidation (i.e. solvent) and opposed to a Creditors’ Voluntary Liquidation (i.e. insolvent).
If my company owns physical assets or shares, can these be transferred to the shareholders?
Yes, this is what we refer to as a distribution in specie. Providing there is sufficient cash within the company to cover any liabilities, the agreed costs of the process and the repayment of share capital, all other assets can be distributed in specie amongst the shareholders if this is the preferred route. The value of the distribution to be used within your self-assessment tax return is the market value of that particular asset.
What happens if I forget about a liability and all funds have already been distributed?
At the start of the liquidation process the Liquidator will write to any party who may have a claim against the company asking them to provide particulars of that claim. A formal request to submit claims will also be advertised in the London Gazette, and by any other means (if appropriate). Creditors usually respond very quickly so as not to delay payment, although some larger organisations and HMRC may take some time.
If shareholders require a distribution of funds early in the liquidation a calculation will be made that accounts for all known liabilities. Shareholders will be asked to enter into an indemnity with the Liquidator which requires the repayment of distributed funds in the event of any additional liabilities coming to light. Be assured that indemnities are very rarely enforced.