Posted by Luke Venner on March 2, 2018
A Members’ Voluntary Liquidation (MVL) of a company can be a sensible route to winding up a company in certain circumstances.
It is often the case that a company which is perfectly solvent and has assets greater than its liabilities, has reached the end of its useful life and perhaps the directors/shareholders want to retire.
The law dictates that a company must be disposed of in a recognised manner, and a MVL is a process that enables shareholders to appoint a Licensed Insolvency Practitioner to act as Liquidator in order to formally close down a solvent company.
The Liquidator’s principal duties are to realise the company’s assets, discharge any liabilities and then distribute the remaining funds to the shareholders, either in cash or in specie, although it is often the case that directors choose to tidy up the affairs of the company as far as possible prior to liquidation, which is entirely permissible.
But why should I choose to liquidate the company instead of simply striking it off, you may ask?
Here are the common reasons that address that question:
1. The distributions to shareholders in a MVL are treated as capital, rather than income, and as such are significantly more tax efficient in the majority of cases. Entrepreneurs Relief can often be claimed by shareholders which furthers the tax advantage. If the company is instead simply struck off and the funds are distributed to the shareholders as dividend income ahead of the striking off, it is likely that the tax charge on the shareholders will be significantly higher;
2. The shareholders can authorise the Liquidator to distribute certain assets in specie should they wish, which then avoids the need to turn those assets into cash beforehand which in the case of property, for example, can become time-consuming;
3. A formal MVL procedure ensures that all creditor claims are properly addressed, even if they are unknown at the date of liquidation. If a company is simply struck-off without having first addressed all of its liabilities, which is not uncommon as it can often be difficult to determine all contingent and prospective liabilities when the business is closed down, there is a risk that a creditor will restore the company which then hands the problem back to the directors;
4. It is a criminal offence if directors apply to strike off a company when they are ineligible to do so, and interested parties can object. The alternative option of a MVL ensures that the closure is properly dealt with and, provided the company is genuinely solvent and its debts can be settled within 12 months, the directors can be safe in the knowledge that the responsibility for the company’s affairs passes to the Liquidator.
5. The process for placing a company into MVL is unlikely to take more than two to three weeks following an initial meeting of directors, where as with striking off, notice has to be provided to all interested parties within seven days of the application being made, the application must be advertised in the London Gazette and it then takes two months for the Registrar to dissolve the company, provided there are no objections.
If you have closed your business or are considering closure and require further information on your options, a member of our Business Recovery team would be pleased to discuss this with you further on a no cost, no obligation basis initially.