Members Voluntary Liquidation
A Members Voluntary Liquidation (MVL) is a formal process available to companies that are solvent, resulting in them ceasing to exist and any surplus net assets being distributed to the shareholders.
MVL’s can be used in several ways including bringing to an end a small singular company which is no longer required to streamlining complex group organisations. In addition, they provide legal and tax benefits.
When can a Member Voluntary Liquidation be used?
Q. Are you running groups containing dormant or non-trading companies that create unnecessary administration, audit and filing costs?
Q. Has a business come to the end of its natural life and/or is the owner-manager retiring?
Q. Is there a desire to extract shareholder wealth in a tax-efficient way?
Q. Is there a need to demerge different parts of a business to resolve disputes between shareholders facilitate a business sale or ring-fence less profitable or high-risk activities?
Advantages of Members Voluntary Liquidation
Management and control of risks:
- Achieves finality as it is a formal process with a strict timetable for identifying creditors’ claims
- Provides a way of resolving any disputes
- The process and risk is managed by a liquidator so management teams are not distracted from running ongoing trading activities
Potential to release capital:
- The liquidator will realise assets, agree creditors’ claims and distribute assets to creditors and/or shareholders
- All net assets and reserves can be returned to shareholders
Tax-efficient extraction of wealth:
- Enables distributions to be subject to capital gains tax rates
- Under an MVL, entrepreneurs’ relief may be available, resulting in a 10% tax rate on qualifying gains of up to £10m
Efficient and effective demergers:
- Can enable the separation of property assets and trade
- Assets can be transferred to new companies without cash transactions, and with no gains arising
- The risk of trading businesses having a negative impact on property assets can be managed
Why not just Strike-Off the company?
Before dismissing a MVL and opting for the Strike-Off procedure you should consider these points:
- Any distributions to shareholders will be treated as income and may result in a greater tax-charge
- A company can be restored any time up to six years after dissolution
- No access to Entrepreneurs Relief
- No distribution of reserves or share capital is available
- Any breach by the directors in making the application to strike off leaves them open to prosecution
- Upon dissolution, any remaining assets become Bona Vacantia i.e. transfer to the state
- The procedure is ineffective where there are contingent liabilities such as warranties or disputed debts.