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An MVL, or Members’ Voluntary Liquidation, is an official process for closing down a solvent company. There are various reasons why a company might be closed down in this way – sometimes a business has simply reached the end of its usefulness for the owners, whilst in other instances the directors may wish to retire.
MVL can be a tax-efficient way to extract funds from a business. Distributions are taxed as capital rather than income, and members may also be able to claim Business Asset Disposal Relief (previously known as Entrepreneurs’ Relief), which brings the effective rate of tax down to 10%.
So what is the timeline and process for a Members’ Voluntary Liquidation?
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We recognise that Business Asset Disposal Relief (BADR) plays a crucial role in promoting entrepreneurship and investment in the UK. Although BADR provides a tax-efficient way to exit business ventures, potential tax reforms could affect its future. If you are a company owner or director considering closing your solvent business and exploring options such as MVL for its future, reach out to our Business Recovery and Restructuring team to benefit from their expertise.
The basic timeline of a Members’ Voluntary Liquidation is as follows:
So let’s look at this timeline in a little more detail.
A licensed IP is needed to administer an MVL because it’s an official procedure. Initially, however, directors and members will seek advice and guidance from an IP on whether an MVL is right for their company. If so, an IP will be appointed to oversee and administer the liquidation and closure of the business.
Directors must sign a Declaration of Solvency before the process can go ahead. This effectively states that the company can repay all its debts, including contingent liabilities, within 12 months of the date of the declaration.
Contingent liabilities are payments that might need to be made, but that aren’t definite – a pending claim by a customer for a faulty product is an example of a contingent liability, as is an ongoing claim for unfair dismissal by an employee.
It’s crucial to be certain that the company can repay all its creditors in this timeframe, and to ensure all creditors are informed of the company’s planned closure, as any unexpected claims could tip the business over into insolvency.
A resolution to wind up the company via Members’ Voluntary Liquidation must be passed within five weeks of the Declaration of Solvency. Company shareholders cast their votes and if 75% of members vote in favour, the process can begin.
The Gazette is the official public record in the UK, and within 14 days’ of the resolution being made, an advert must be placed to announce the closure of the company. This alerts creditors to the members’ intentions, and enables claims to be made for repayment. The liquidator must also officially inform creditors of the pending company closure within 28 days.
All company assets are sold by the liquidator, creditors fully repaid, and remaining funds distributed to members. As we mentioned earlier, MVL can be a tax-efficient process as it allows for Business Asset Disposal Relief to be claimed by eligible individuals.
Distributions are taxed as capital rather than income following an MVL, but Business Asset Disposal Relief further reduces the effective rate of tax to 10% on the closure of a business via this route.
Start your online liquidation today
If you have decided liquidation is the right option for your limited company, you can take the first step and begin the process online using our online portal. Starting the process is quick, simple, and can be done at a time that suits you. Your information will be submitted to your local UK Liquidators insolvency practitioner who will be with you every step of the way. Click here to start your company’s liquidation online.
When the liquidator has filed final documents with Companies House and the procedure is complete, another notice is placed in the Gazette. The company is then removed from the Register of Companies at Companies House, and ceases to exist.
The full timeline for a Members’ Voluntary Liquidation from start to completion is typically between six months and a year, but this depends on the complexity of the business. MVL is a commonly used business exit strategy that offers significant benefits to shareholders and directors.
For more information on the timeline and process of an MVL, please contact our team of licensed insolvency practitioners at UK Liquidators. We’ll arrange a free same-day consultation – we operate a wide network of UK offices.
If you are considering liquidation for your limited company, taking advice from a licensed insolvency practitioner can help you understand your options.
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If you are considering liquidation for your company, taking expert advice at an early stage is crucial. At UK Liquidators, our team of licensed insolvency practitioners are committed to providing limited company directors with the help and advice they need to make an informed decision.
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