Members Voluntary Liquidation (MVL)

An MVL is a solvent liquidation. An effective and often tax efficient mechanism utilised to enable a company’s funds to be released to shareholders, following the cessation of trade, often as part of the retirement planning of owner managers who have sold their businesses.

Following the rescission of Extra Statutory Concession (“ESC”) 16, it is no longer possible, except in exceptional circumstances, to extract funds in excess of £25,000 from a company and for those funds to be treated as a capital distribution, rather than income, unless the company is first placed into liquidation.

Whilst an MVL is a solvent liquidation, the legislation provides for only licensed insolvency practitioners to carry out this process.

The process is relatively straight forward, since it seldom involves any input from creditors other than H M Revenue & Customs in respect of accrued Corporation Tax liabilities. However, as with many major steps in life, it does need to be carefully planned.

The cost of the process is always a major consideration and it is possible for this to be minimised by ensuring that all assets have been realised and all liabilities paid, to the extent they can be, before the process begins. If an insolvency practitioner has to be involved in the realisation of assets and payment of liabilities, the process will be expensive.

Time costs will be substantial and in particular, creditors are entitled to be paid interest at the rate of 8% per annum on their claims from the date of liquidation to the date of payment.

Once the assets have been realised and creditors paid, the directors must make a Declaration of Solvency. This is a summary of the financial position of the company and all of the directors, or the majority if there are more than two, are required to make a statutory declaration to the effect that the company is able to pay all of its debts, both actual and contingent, together with interest on those debts and the costs of liquidation within a period of not more than twelve months.

This declaration must be made up to a date that is not more than five weeks before the passing of the resolution to liquidate the company.

The resolution is a Special Resolution and any general meeting of shareholders to consider it must be convened on notice of fourteen clear days, unless the company’s Articles prescribe otherwise. It is however possible to waive this notice provided a sufficient majority of shareholders agrees.

Once the resolution is passed, the liquidator takes over responsibility for the company.

Provided all of the assets are realised, the liquidator will settle any outstanding creditors’ claims, which as is indicated above, will usually be Corporation Tax accrued up to the date of the resolution.

Once those claims have been settled, the funds are distributed to the shareholders in accordance with their shareholdings. The liquidation comes to an end following a final meeting of shareholders and is dissolved three months after that.

Complications can arise however, and it can often be some time before clearance is obtained from government departments, particularly HM Revenue & Customs who have a right to raise enquiries on accounts submitted at any time up to a full year after the relevant tax has become payable.

Where a solvent company is in MVL and the liquidator is unable to settle its liabilities within one year of the commencement of the liquidation, he is obliged to convene a meeting of the company’s creditors, to explain the circumstances and to place the company into Creditors’ Voluntary Liquidation (“CVL”). The liquidation will then continue as a CVL, with annual progress reports being circulated among the creditors as well as the shareholders until it is finalised, even if all creditors are eventually paid in full, together with interest on their debts.

A common complication, particularly in companies that have been involved in manufacturing or construction, is the manifestation of claims from former employees relating to industrial injuries or diseases.

These claims can often date back a considerable number of years and whilst invariably they are covered by Employers’ Liability Insurance it is not always possible to trace who provided cover at the time of the incident / employment.

For more information please email us using the form on the “Contact us” page or call us on 01384 686 800 to talk things through or to arrange a free, initial, no obligation consultation.