Members Voluntary Liquidation (MVL)
There are various reasons why the shareholders of a solvent company might wish to bring the life of their Company to an end and these include:
The Company has ceased trading and the shareholders want to “unlock” the value of the business.
The retirement of the directors/shareholders.
Directors/shareholders are in dispute and want to go their separate ways.
Groups of companies may include dormant subsidiaries which are no longer required.
To demonstrate that the Company is solvent all or the majority of directors must swear a declaration of solvency, incorporating a Statement of Affairs, declaring that
- They have made a full enquiry into the company’s financial affairs and
- They have formed the opinion that the company will be able to pay all its debts in full plus interest within a period of 12 months
Since 1 March 2012 HM Revenue & Custom’s Extra Statutory Concession, C16 (ESC C16) introduced a cap of £25,000 on the amount that can be paid out on the dissolution of a Company and be treated as a distribution of capital rather than income.
The main advantage of an MVL is that all distributions made to the shareholders in the liquidation are classed as distributions of capital rather than income
Capital distributions are subject to Capital Gains Tax rather than income Tax which is charged at a lower rate. The tax payable by the shareholder can therefore be reduced even further by applying the various capital reliefs that are available including entrepreneurs relief.
In an MVL the shareholders control the appointment of the Liquidator not the creditors who will be paid in full. A meeting of the shareholders will be held at which the Company will be placed into Liquidation and a Liquidator appointed.
If during the administration of the Liquidation the Liquidator concludes that there are insufficient assets to settle creditor’s claims in full then the MVL can be converted to a Creditor’s Voluntary Liquidation (“CVL”) i.e. an Insolvent Liquidation.
Before concluding the Liquidation, the Liquidator will obtain the appropriate tax clearances from HM Revenue & Customs.
Please speak to myself or my colleague, Caroline Smith, should you need further assistance in this regard. 01474 532 862