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Corporate Insolvency

A Members Voluntary Liquidation (MVL) is the formal procedure for winding up and liquidating a ‘Solvent’ company. This means that the company has sufficient assets to cover its debts and everyone will be paid in full, with any remaining funds distributed to shareholders. As the company is solvent entering into MVL is voluntary.

Because the process is voluntary and the business is solvent, the process is often relatively straightforward and often costs less than a creditor’s liquidation. When a company is ‘dissolved’ through Companies House it is often a forgotten fact that a creditor could apply to have the company restored within a period of 20yrs from dissolution, however this is not the case if the company is closed through Members Voluntary Liquidation.

As from 1st March 2012 if a company undergoes an informal winding up procedure, HMRC will allow distributions up to a maximum of £25,000 to be treated as capital. Should total distributions exceed £25,000 then distributions will be treated as dividend income.

However, should the company enter into Members’ Voluntary Liquidation, the £25,000 limit will not apply and distributions will be treated as a capital receipt and have the tax advantage of being subject to capital gains tax rather than income tax.

The costs of an MVL will be paid from the funds at bank and will significantly save you money when compared with the tax savings. We strongly recommend that independent professional tax advice is taken prior to a company entering an MVL for this reason (we can help you with this).

MVL Benefits

  • Provides a potential tax efficient exit route to shareholders (see below).
  • Provide a managed exit as the shareholders control the process.
  • Useful for shareholders who are considering retirement.
  • Closure of a company when it has come to the end of the project it was formed for.
  • Enables a group of companies to close down a subsidiary which is no longer required.

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