Members’ Voluntary Liquidation
A Members’ Voluntary Liquidation (‘MVL’) is a procedure that enables shareholders to place a company into solvent liquidation to unlock their capital. A company is considered solvent where it has sufficient assets to pay its debts in full, including any prospective and contingent liabilities. The appointed Liquidator will realise all company assets, settle all liabilities and distribute the remaining assets to shareholders. The procedure can also be used to wind-up a solvent company that is no longer required.
Shareholders will be required to pass resolutions at a General Meeting to place the company into MVL and to appoint a Liquidator. The directors of the company will also be required to sign a Statutory Declaration of Solvency, confirming that they have made a full enquiry into the affairs of the company and believe it will be able to pay its debts in full within a period of 12 months from the commencement of the winding-up.
The appointed Liquidator must ensure that the company remains in a solvent position throughout the MVL procedure. There are occasions when additional creditors are identified by the Liquidator following the company entering MVL, resulting in the company becoming insolvent. If the company is considered insolvent, the Liquidator will be required to place the company into Creditors’ Voluntary Liquidation (“CVL”). Therefore, it is important that all creditors are identified prior to the company entering MVL.
A MVL can be a tax effective procedure for shareholders to unlock their capital. However, it is extremely important that directors and/or shareholders consider the full tax implications before considering a MVL. The new Finance Bill 2016 came into force on 6 April 2016 to reduce the number of companies abusing the entrepreneurs’ relief for personal benefit in a phoenix style operation. HM Revenue & Customs identified that many owner managed businesses abused the process by continually opening and closing companies to take advantage of the tax benefits. From 6th April 2016, distributions from an MVL will be treated as income instead of capital in cases where the following apply:
- If an individual who is a shareholder in a close company receives from the close company a distribution in respect of shares in a winding-up;
- If within a period of two years following the winding-up, the shareholder continues to be involved in a similar trade or activity;
- If the main purpose (or one the thereof) of the arrangement is to obtain a tax advantage.
If these conditions are not met, the shareholder will not be able to claim entrepreneurs’ relief on the distribution. They would then have to pay income tax at a higher rate.
We are able to advise, assist and assess whether a MVL is the best option for your company. We have helped companies of all sizes across many different sectors. Contact us today on 0800 061 4002 should you require any further information on a Members’ Voluntary Liquidation and the options that may be available to you.