What is a Members’ Voluntary Liquidation (MVL)?

An MVL is a formal liquidation process that closes a solvent company in a tax-efficient manner. The purpose of an MVL is to distribute the assets to the shareholders as capital rather than income, making it a popular option for the directors of solvent companies who wish to cease trading.

When would an MVL be considered?

Most companies that are placed into liquidation are those that have been unsuccessful and can no longer continue to trade because they are unable to pay their liabilities. In these circumstances, the directors and shareholders will place the company into a creditors voluntary liquidation, or a creditor could take legal proceedings to have the company wound up.

However, as stated above, an MVL is used by solvent companies to bring a company to an end.  This may be required due to a dispute between shareholders, making it impractical for the company to continue in its current form, or more commonly, as a result of the retirement of the company owner/s who are ceasing trading and wish extract their capital in a tax-efficient manner.

Who is eligible for an MVL?

MVLs are only available for solvent companies and the directors are required to make a sworn declaration that the company is solvent and has the ability to pay all of its taxes, creditors and meet all of its contractual obligations. In other words, the company must not only be able to pay its current liabilities but must also be able to pay its future liabilities that have yet to crystallise. These will normally include closing the company’s accounts with HMRC by preparing and filing any PAYE/NIC, VAT and Corporation Tax returns and paying any outstanding balance. It may also include settling any long-term contractual liabilities such as leases and finance agreements.

The directors must therefore be reasonably certain that the company will be able to meet all obligations before proceeding with an MVL and convening a shareholders/members’ meeting to appoint a liquidator.

What is the process?

Only a licensed IP, such as Paula Watson or Darren McMath, can be appointed as a liquidator. A licenced IP should explain and guide you through the process, highlighting all the advantages & disadvantages. They will realise the company’s assets, settle any legal disputes and pay any outstanding creditors and then distribute the remaining surplus funds to the company’s shareholders/members.

Once the liquidator has completed these formalities and received clearance from HMRC, the company will be dissolved and formally removed from the companies register.

What are the advantages of an MVL?

The primary benefit of a liquidation is to bring a company’s affairs to an orderly closure, to appoint a liquidator to deal with the formalities and for the company to be removed from the companies register. In an MVL, the liquidation should also result in an expedient distribution of the surplus funds to the shareholders/members.

Other benefits include:

• Returns surplus assets in a tax efficient manner to shareholders;
• You may qualify for entrepreneurs relief on the distribution;
• Directors are in control and can choose their liquidator;
• Reduces risk to directors;
• Quick access to shareholder funds;
• Peace of mind;
• Extract the value of the business in the form of cash;
• The process has little negative effect on your company’s reputation.

What are the disadvantages of a MVL?

Other points to consider are:

• An MVL is only suitable for solvent companies;
• Debts which have been personally guaranteed by company directors survive the liquidation and creditors will be able to pursue the directors for them personally;
• Funds must be paid into the MVL and debts settled within 12 months.

To find out what solutions are available for your company, get in touch!

For free and confidential guidance and advice on the business rescue and recovery options available for your business, contact our experienced insolvency team here at Arthur Boyd & Company by email info@arthurboyd.co.uk or call 028 9032 9255.