The Complete Guide to Members Voluntary Liquidation (MVL)

What is an MVL?

An MVL or members’ voluntary liquidation is a tax-efficient legal process used to close down UK companies that are solvent but no longer required.

Indeed, MVLs are the only form of solvent liquidation.

As a specialist procedure, MVL liquidation must be managed by an insolvency practitioner from a firm like Irwin Insolvency.

After being appointed as liquidator, your chosen IP will carry out the MVL process.

This involves winding up your company in a lawful, orderly manner, selling its assets, and distributing the proceeds proportionally among the directors and other shareholders (i.e. the members).

The members’ voluntary liquidation process is financially advantageous for individuals who have a say in the running of the business – those with voting rights, in other words – and offers attractive tax benefits, as we’ll explain later in this MVL guide.

As a result, an MVL differs from creditors’ voluntary liquidation (CVL) and compulsory liquidation, which focus on protecting the interests of parties seeking to recover money from insolvent firms.

Only companies with cash reserves and/or assets outweighing their liabilities can enter members’ voluntary liquidation.

In a nutshell, MVL liquidation doesn’t mean a firm is failing.

On the contrary, a company in an MVL is financially secure and successful.

The business is being wound up simply because it’s fulfilled its purpose and the directors are ready to move on.

If you’re ready to place your company in an MVL or want tailored advice, contact our experts today.

What is the purpose of Members’ Voluntary Liquidation?

The purpose of an MVL is to extract as capital the maximum value possible from the company while minimising the risks to its directors, who may feel daunted by the complex legal landscape of liquidation.

As liquidator, the insolvency practitioner plays a crucial role: they strive to achieve the best prices for assets and support the directors by taking charge of the company and ensuring full legal compliance throughout the members’ voluntary liquidation process.

Because MVLs are legal, well-organised, tax-efficient procedures for closing down solvent businesses, they’re a popular UK business exit strategy.

Generally speaking, MVL liquidation is used to wind up a company that needs to dispose of significant funds.

That’s because MVL distributions are always classed as capital, not income or dividends (which can be subject to much higher tax rates).

Plus, you can further reduce your tax bill with the government’s Business Asset Disposal Relief or BADR, which we’ll discuss later in this MVL guide.

By contrast, if you wind up your firm outside the MVL process, you won’t enjoy such compelling tax benefits.

When to use an MVL

The members’ voluntary liquidation process is used to wind up companies in a wide range of situations:

• Directors who are retiring, emigrating or transferring their skills to a different industry may want to arrange an MVL if they’d rather not be tasked with finding a buyer for their business
• The MVL process can also be ideal for directors who’ve been working as contractors and now wish to become employees at a different company
• MVL liquidation can protect directors who worry they may be accused of favouritism by other members. The insolvency practitioner is an impartial third party who distributes funds fairly. Each shareholder therefore receives a sum that reflects their contribution to the company
• MVLs can help directors to fulfil corporate restructuring plans and make operations more manageable by liquidating subsidiaries

What are the benefits of an MVL?

The members’ voluntary liquidation process has many advantages.

Major MVL benefits include:

• Convenience – you decide when the MVL begins
• Low risk – the insolvency practitioner, a liquidation expert, handles the full MVL process. You won’t have to shoulder responsibility for it
• Maximises value – the insolvency practitioner aims to recover as much money through the sale of assets as possible for the benefit of shareholders
• Substantial tax savings – even if the company has tens of thousands of pounds or more to dispose of, MVL distributions won’t be subject to income tax. And shareholders granted BADR can pay just 10 per cent tax
• Protects your reputation – an MVL means you’re liquidating a stable, solvent business
• A dignified end – the company ceases to exist as a result of the members’ voluntary liquidation process, leaving you free to start your next chapter

What are the tax implications of MVL? Why is MVL tax-efficient?

You’ll be pleased to hear that members’ voluntary liquidation tax implications are extremely positive and can have a beneficial effect on your tax position.

You just need to ensure that reducing your tax bill isn’t the main reason for arranging an MVL.

Directors behaving in that way may be committing tax avoidance – especially if they liquidate a company then create a similar one within a couple of years.

Placing your company in an MVL means all shareholder distributions will be subject to capital gains tax (which has a top rate of 20 per cent) instead of income tax (which can be charged at a rate of up to 45 per cent).

Capital gains tax is applied even to MVL funds in excess of £25,000, the usual limit for capital distributions.

This makes the MVL process remarkably tax-efficient, especially for businesses disposing of large sums.

Another reason why MVL liquidation performs so well in relation to tax-efficiency is that shareholders who’ve held at least a five per cent stake in the business for the past two years can cut the top capital gains tax rate to just 10 per cent on up to £1 million, thanks to BADR.

What are the requirements for MVL?

To be eligible for MVL liquidation, your company is required to fulfil certain criteria:

1. It must be solvent and remain so after settling any debts (including tax owed to HMRC), including interest. Indeed, the directors must sign a Declaration of Solvency (a subject we’ll cover in more detail in the next section of this MVL guide) before the liquidation.
2. The company must’ve had the same name for the past three months or more and be able to meet any outstanding contractual obligations. It mustn’t be involved in any unresolved legal action, as that could interfere with the smooth running of the members’ voluntary liquidation process.
3. The move to place the firm in an MVL must gain the support of at least 75 per cent of shareholders (by share value).

If you’re unsure whether or not your business is a suitable candidate for an MVL, Irwin Insolvency can advise you.

Simply call us today on 0800 254 5122.

What is a declaration of solvency for MVL?

It’s impossible to overstate the importance of a Declaration of Solvency when you want your company to enter the members’ voluntary liquidation process.

Without this legal document, you can’t pursue an MVL because the procedure is only available to solvent businesses.

The Declaration of Solvency states that the company is solvent and has the financial resources required to repay all existing debts and any other liabilities that could be on the horizon (a personal injury claim, for example), including statutory interest charged at a rate of eight per cent within 12 months.

All or most of the directors must sign and swear to the document, which is accompanied by a statement of assets and liabilities, in the presence of a solicitor.

Making a false Declaration of Solvency, whether knowingly or not, is a criminal offence and results in being fined, disqualified from future directorships or imprisoned for up to two years.

The gravity of the situation underscores the importance of consulting an MVL specialist, such as Irwin Insolvency, and thoroughly reviewing your company’s finances before making a Declaration of Solvency.

How does an MVL work?

After consulting an insolvency practitioner and securing shareholders’ support, the directors of the company embarking on MVL liquidation take a step back.

The insolvency practitioner, working as liquidator, assumes control of the company and is assisted by the directors. The IP recovers as much money as possible through the sale of assets, repays creditors then turns their attention to shareholders’ capital distributions.

After the business’s affairs are brought to a satisfactory conclusion and all funds disposed of, the members’ voluntary liquidation process is complete. The firm is then removed from the Companies House register.

The MVL process

What happens to a company during members’ voluntary liquidation?

The MVL process has six key stages:

Specialist advice

The members’ voluntary liquidation process is initiated by a solvent company’s directors. Having decided to wind up their business and distribute the proceeds among members, they obtain professional advice from an insolvency practitioner with the aim of confirming that it’s appropriate to arrange an MVL.

The IP will study the company’s history and financial records. They need to be satisfied that everything is in order and the business fulfils the MVL liquidation requirements outlined earlier in this MVL guide.

Declaration of Solvency

The directors sign and swear to a Declaration of Solvency in front of a solicitor, attesting to the business’s financial stability and ability to repay its debts.

Shareholders’ vote

The directors work closely with the insolvency practitioner to produce key documents designed to bring all shareholders up to speed with the plans for an MVL. The documents include a summary of the company’s financial position, details of how assets would be valued/sold and funds distributed by the liquidator, and a winding-up resolution. They’ll present a strong case for members’ voluntary liquidation.

A shareholders’ meeting is held, giving everyone who has a say in the company’s future the opportunity to ask questions about the proposed MVL liquidation, as well as vote on the winding-up resolution. Assuming three quarters of shareholders (by share value) vote in favour of winding-up the business, the insolvency practitioner can be appointed as liquidator and the members’ voluntary liquidation process can continue.

Sale of assets

With the groundwork complete, the insolvency practitioner makes the MVL public knowledge with an advert in The Gazette.

This gives any creditors who haven’t yet come forward the chance to do so. A creditors’ meeting is held to ensure all relevant parties are aware of when and how debts will be settled.

The IP arranges for assets to be valued then sells them. (Any that would prove difficult to liquidate in a timely manner, such as land, can be transferred to shareholders ‘in specie’, i.e. in their current form.)

Some money raised by the sale of assets will be used to repay debts; the rest is set aside for capital distributions.

The IP interviews the directors about their decision to place the company in MVL liquidation, creating records that may prove helpful in the event of any inquiries, investigations or legal action in the future.

Deed of Indemnity

The shareholders sign a Deed of Indemnity, which enables the insolvency practitioner to release their capital distributions before the MVL process ends.

By signing the document, the shareholders agree to repay any money required to settle any legitimate creditor claims that may subsequently be made.

However, the IP will have done their utmost to identify all creditors before issuing shareholders’ distributions.

Dissolution

The insolvency practitioner will convene a final company meeting to mark the end of the members’ voluntary liquidation process and advertise the details in The Gazette.

At the meeting, the IP will confirm that all company affairs have been dealt with, as well as presenting a financial summary highlighting the total funds recovered and paid out during the MVL.

The IP will then ask Companies House to remove the business from its register, which will signify that it’s been dissolved.

Normally, dissolution is permanent.

However, you can ask the high courts to reverse the MVL and restore your company within six years if there’s a strong business case for doing so.

Timeline of an MVL

As the following MVL timeline makes clear, MVLs can be set up and put in place in a matter of weeks:

• Once an insolvency practitioner has confirmed that the firm is eligible for an MVL and the directors have signed the Declaration of Solvency, the shareholders’ meeting and vote on the winding-up resolution will be held within five weeks.
• The MVL process will be advertised in The Gazette and the creditors’ meeting held within 14 days of the resolution being passed, while Companies House will be notified and supplied with the Declaration of Solvency within 15 days.
• Once the advert is published, the insolvency practitioner will give any creditors who didn’t come forward before the MVL began 21 days to do so. After that, the IP’s focus will be on shareholders.
• The MVL liquidation is likely to be completed in several months (the exact duration will depend on the complexity of the business’s affairs). The insolvency practitioner will advertise the final meeting in The Gazette a month before it takes place. Companies House will remove the company from its register three months after that meeting.

How long does an MVL take?

As you can tell from the timeline above, the actions required to place a company in an MVL are completed in specific timeframes.

But how long it takes to carry out the MVL liquidation itself varies between companies and depends on factors such as the size of the firm in question and the number or types of assets.

We manage the members’ voluntary liquidation process for numerous UK businesses and find that most MVLs take six to twelve months, making them long-term commitments.

However, it’s often possible to give shareholders the majority of the funds they’re entitled to much sooner (within three months, on average, of the MVL being put in place), thanks to the Deed of Indemnity and our highly efficient approach to liquidation.

Your insolvency practitioner will keep you well informed throughout the MVL process. So even though you won’t be at the helm anymore, you’ll know exactly what’s happening to the company at all times.

How to speed up the MVL process

Although MVL liquidation tends to be a time-consuming process, there are several things you can do before it begins in order to speed it up.

A particularly effective way of accelerating the members’ voluntary liquidation process is to repay as many debts as possible before the MVL is implemented. This will enable the insolvency practitioner you appoint as liquidator to focus on shareholder distributions sooner.

Other things you can do before the MVL liquidation gets underway that’ll speed it up include:

• Gathering together your business’s financial records so they’re ready to be handed over to the IP for analysis as soon as they’re required
• Booking a solicitor’s appointment to sign the Declaration of Solvency at your earliest convenience once the IP has confirmed your company is suitable for an MVL and you’ve both reviewed and are happy with its finances
• Transferring the business’s bank balance to the IP’s client account as soon as possible to ensure funds can be accessed and distributed in a timely manner

How Much Does an MVL cost?

The total cost of members’ voluntary liquidation can be broken down into two key components:

1. The insolvency practitioner’s fee for the specialist work they undertake when setting up and carrying out the MVL. This amount is influenced by the number, types and value of assets, as well as the number of creditors and shareholders. For a straightforward liquidation, a fee of around £2,000 is realistic.
2. Essential expenses incurred during the MVL liquidation process, i.e. taking out a statutory bond (which protects capital while it’s under the stewardship of the IP and costs in the region of £40-£600, depending on the firm’s value) and advertising in The Gazette (which costs approximately £400).

There’s no set price for MVLs – the cost in each case is largely determined by how much work is needed to complete the process.

But to give you a general idea of MVL prices, many firms pay around £4,000 in total.

When you consider that the price can often be offset against tax savings, MVLs are extremely cost-effective procedures.

Plus, we’re committed to transparent pricing, so you won’t get any unwelcome surprises.

What are disbursements in an MVL?

When reading about MVL liquidation fees, you may come across the term ‘disbursements’ and wonder what it means.

It’s just another name for the essential expenses outlined in the previous section (namely the statutory bond and adverts).

In other words, disbursements help the insolvency practitioner to carry out the MVL process lawfully and diligently.

What happens to employees in MVL?

Because a company entering the members’ voluntary liquidation process must be solvent, employees are in a more favourable position than if the firm was undergoing insolvent liquidation.

Although they’ll ultimately be made redundant due to the business’s closure, employees should be paid as normal until their final agreed payday.

And they may be eligible for statutory redundancy pay if they’ve worked at the firm for at least two years.

What are the alternatives to an MVL?

For solvent companies, the only alternative to MVL liquidation is voluntary strike-off.

This involves sending a strike-off application to Companies House for a nominal fee and informing everyone who may be affected by the company’s closure about your plans.

Although voluntary strike-off is cheaper and quicker than the MVL process, all the responsibility for disposing of assets and closing down the firm lawfully rests on directors’ shoulders; no expert help is available from insolvency practitioners.

Moreover, distributions above £25,000 are classed as income during voluntary strike-off and therefore taxed at a higher rate than in an MVL.

How should I prepare my company for entering into an MVL?

The following three-pronged approach to preparing for the MVL process will help you to simplify and streamline your business’s affairs:

• Check that the company’s accounts and other financial documents are accurate and up to date
• Create a comprehensive list of creditors and repay as many debts as is feasible straight away. Also settle your director’s loan account if you owe the business money
• Sell off stock and any other assets that can be disposed of relatively easily and quickly

MVLs from solvent liquidation experts

It’s vital to find an insolvency practitioner you feel you’ll be able to work closely with and obtain expert advice from them about the members’ voluntary liquidation process.

As experienced, approachable insolvency practitioners, we put clients at the centre of everything we do and have the expertise to liquidate your business smoothly and efficiently with an MVL.

Are you ready to wind up your company while unlocking its value?

Contact Irwin Insolvency today for an MVL liquidation service you can trust.