Members Voluntary Liquidation (MVL) Vs Striking off
When a solvent company that has ceased to trade wants to be dissolved they have different options. It could be wound up voluntarily by its members or an application made to Companies House for the Company to be struck from the Register. Both options can provide an efficient means of dissolving a company and returning investment to its shareholders.
The timing of events is important in terms of taxation to ensure that full advantage is taken when timing events.
Members’ voluntary liquidation (MVL)
This is an option where the company is solvent (i.e. able to meet any debts), but there is still a desire to have it wound up for example if the business owner wishes to retire or sell the company to free up funds for a new project.
There may still be outstanding debts, but if you are extremely confident that these will be repaid in full within 12 months from the beginning of the process of winding up the company you may apply for a MVL. The directors have to provide a statutory declaration of solvency to this effect. If the company fails to settle its liabilities within the prescribed time then any director making such a declaration, without having reasonable grounds for forming that opinion, is liable to imprisonment and/or a fine. It is critical therefore that directors take proper advice and give full consideration to the company’s position prior to making such a declaration.
You may be faced with a choice between MVL and applying for voluntary strike-off (see below). All assets extracted from the company via liquidation are treated as capital for tax purposes. With voluntary strike off, assets after the first £25,000 are treated as income. If your company structure is relatively complex, if you’re a higher rate tax payer or the value of your company assets, after creditors have been paid, is likely to exceed £25,000, MVL may be the preferred way forward.
In a similar way to CVL a liquidator is appointed and, after creditors have been paid, net liquid assets are distributed amongst company members.
Because of the involvement of a liquidator the administrative costs associated with MVL tend to be higher than with voluntary strike off. However, especially when it comes to tax considerations, this option may still make better financial sense.
Voluntary strike-off and dissolution
Application for striking off is made to the Register of Companies under the provisions of the Companies Act 2006. It can be a very cost effective method of dealing with dormant companies with no assets or liabilities (including contingent liabilities). This process can be useful where the company has served its purpose, is no longer active and is unlikely to be required in the future (i.e. if you’re retiring). If there’s a chance that you may wish to use the company again you should consider keeping it as dormant (it can remain dormant indefinitely, provided you keep up with simple reporting requirements).
Dissolution is not a process for trying to evade creditors. If it is found you have failed to notify a creditor of your application to dissolve the company you could be prosecuted and, in certain circumstances, barred from holding future directorships for a period of 15 years.
You can close your company by simply applying to have it struck off the Companies House register if it hasn’t traded or sold off any stock in the last 3 months and it hasn’t changed its name in the last three months.
It also mustn’t be threatened with liquidation and has no agreements in place with creditors, such as a ‘company voluntary arrangement’ (CVA), which is a legally binding agreement that lets a company freeze its unsecured debts and repay them with future profits.
Before you apply to strike off your company you must pay any remaining creditors, disposing of any remaining assets and closing the company’s bank account. From the date of dissolution any assets of a dissolved company are frozen and any credit balance will belong to the Crown. You must notify HMRC.
You need to complete the application to strike off (form DS1) and send this to Companies House and to anyone who could be affected within 7 days. This includes any members, creditors still to be paid, employees, pension fund managers and/or trustees.
If no objection is received within 2 months, the company is dissolved. The Government has recently accelerated the striking off process for more information please see our article
If you are looking to dissolve your company or would like some advice please do get in contact.