If you’re looking for the best method of closing your solvent company, you may be wondering, what is Members’ Voluntary Liquidation? In this guide, we’ll explain exactly what it is and how it can help you close your business in the most efficient way.
Join us and decide for yourself whether this is the best path for you.
What Is Members’ Voluntary Liquidation?
The term Members’ Voluntary Liquidation refers to the formal process whereby a solvent company liquidates its assets in order to pay off remaining debts, while distributing surplus funds to shareholders. The key distinction between MVLs and other forms of Liquidation is that the company is solvent, and will therefore have assets sufficient to cover its liabilities.
What this means is that, unlike compulsory Liquidation and Creditors’ Voluntary Liquidation, the reasons to lead a director to consider an MVL are much more wide-reaching than simply financial issues.
Why Choose MVL?
Members’ Voluntary Liquidation is most often utilised when a company owner no longer wants to remain in control, and the prospect of an external sale or internal continuation is deemed unfeasible. An MVL is especially beneficial for companies with retained profits, as it allows for the tax-efficient extraction of such funds.
A selection of the most common reasons a director may pursue an MVL includes:
- Retirement: After a significant period, company owners may simply no longer wish to continue operations, preferring to enjoy the perks that come with years of hard work.
- Restructuring: A company may undergo changes, such as splitting into smaller entities or merging with another firm. This can lead to the original business being deemed no longer necessary in its current form.
- Dispute Resolution: If there has been a significant shareholder dispute, an MVL can offer a structured way to dissolve the company and bring a tumultuous period to an easy end.
The Members’ Voluntary Liquidation Process
A Members’ Voluntary Liquidation follows a clear, legally defined process. It will begin with the Declaration of Solvency and the appointment of a liquidator. This is then followed by the realisation of assets, creditor payments, and, ultimately, the closure of the business. This ensures creditors are paid, and any remaining assets are distributed properly.
Here’s our brief step-by-step guide to MVL’s:
- Declaration of Solvency: Before the MVL process is able to begin, the director(s) must first formally declare that their business can pay its existing debts within 12 months. This is known as the Declaration of Solvency.
- Liquidator Appointed: Once the Declaration of Solvency has been filed, a licensed insolvency practitioner will be appointed. This expert will act as liquidator. The role of the liquidator in an MVL is to oversee the sale of assets, settle all outstanding debts, and distribute surplus funds.
- Assets Realised: The liquidator will be responsible for the valuation and sale of the company’s assets. This may include property, stock, equipment, and even intellectual property.
- Creditor Payment: Any outstanding debt/liabilities when the assets have been realised must be repaid in full. The liquidator will ensure that all creditors are satisfied before continuing with the next steps.
- Shareholder Distribution: Once all creditors are happy, any remaining funds can then be distributed to shareholders. This will usually be done in proportion to their shareholding, unless a prior arrangement is in place that affects this.
- Company Dissolution: After the businesses core affairs have been wrapped up, the company itself will be officially dissolved. At this point, it will cease to exist as a legal entity.
Key Benefits of an MVL
Understanding what is Members’ Voluntary Liquidation means recognising that its primary benefit lies in its core ability to close down solvent companies in potentially the most tax-efficient and highly structured way possible — one that ensures all debts are paid and remaining assets are distributed.
It’s particularly useful for extracting surplus funds out of your business, at a reduced tax rate, while acting as a legally compliant process to wind up the firm.
Some of the primary benefits of an MVL include:
- Tax-Efficient: One of the obvious advantages of an MVL as a format of shutting down your business is how tax efficient it is. The reason for this is that funds distributed to shareholders are usually treated as capital distributions, which are often more tax-efficient than dividends. For an owner eligible for Business Asset Disposal Relief, this can significantly reduce tax burden.
- Control: MVLs provide a structured process for winding up a business, ensuring all legal obligations are met, and creditors are paid. This can bring some much-needed peace of mind to directors and shareholders, allowing them to know that their company will be closed properly, to the books.
- A Clean Break: By formally closing the company by way of an MVL, directors and shareholders alike are able to achieve a clean break from the business without fear of any lingering debts, complications, or obligations.
- No Future Liability: Once the Members’ Voluntary Liquidation process is complete, directors can rest easy knowing that there will be no future liability to creditors. This is because the liquidator will ensure that any and all creditors receive what is owed to them.
Members’ Voluntary Liquidation: The Best Way to Close a Solvent Company
Whether you’re aiming to retire, considering a restructure, or looking for a fresh start, you now have a clearer understanding of what Members’ Voluntary Liquidation is. This knowledge empowers you to ensure your firm’s affairs are settled smoothly, credits are paid, and shareholders receive their fair share — all while benefiting from potential tax advantages on the way towards a structured exit.
If you’re still unsure if it’s the right choice for you and your situation, it’s crucial that you seek expert advice from an insolvency practitioner as soon as possible. A specialist on your side will be able to guide you through the process and ensure that you are complying with legal requirements — in order to achieve the best possible outcome for all parties.
Ready to Close Your Company with an MVL?
If you’re ready, get in touch with us today and discuss what we can do to help you wind down your solvent business with an MVL. Our team of insolvency specialists will provide clear guidance throughout the Members’ Voluntary Liquidation process and ensure the smoothest, most tax-efficient conclusion possible.