A common assumption people make when they hear the term ‘liquidation’ is that it is only applicable to companies which are insolvent and must close.  That isn’t the case.  There are situations where a company is solvent but the company directors no longer wish to continue running the company.  This is when you may hear the term Members’ Voluntary Liquidation or MVL.

What is a Members’ Voluntary Liquidation?

A Member’s Voluntary Liquidation (“MVL”), or solvent liquidation, is a statutory process used to wind up the affairs of a solvent company so that the company can then be dissolved.  Despite its solvent nature, the MVL process is laid down in the Insolvency Act 1986 (“IA86”) and licenced Insolvency Practitioners (“IPs”) need to be appointed as liquidators.

The MVL process is typically used where a company has come to the end of its natural life or when streamlining a group structure by eliminating unwanted dormant entities.

The process effectively brings the company to a formal end and distributes any remaining assets to its shareholders (through a cash or ‘in specie’ distribution).  The MVL process facilitates a controlled shareholder exit thus allowing them to realise their investment in a tax-efficient manner.

When can a Members’ Voluntary Liquidation be used?

An MVL can only be used to close a company which is solvent.  The company must be in a position to settle any liabilities in full within 12 months.  The company directors have decided they no longer wish to continue with the company which could be for a number of reasons.  It can form part of an exit planning strategy for when the directors are looking to retire but that’s not the only reason.  The directors may be looking to pursue other interests and/or there’s no one suitable in the company willing to take the reins.

Providing the company is solvent, an MVL can be used to formally close the company.  It cannot be used to close an insolvent company.

What are the benefits of a Members’ Voluntary Liquidation?

There are many benefits to using an MVL to close a solvent company:

• Tax efficient distributions to shareholders

If the company has retained profits of £25,000 or more then an MVL can be a cost-effective way to extract those profits. The profits are treated as capital rather than income therefore a more preferential rate of tax is applied.

• Elimination of compliance costs 

There may be companies within a group that are no longer required.  By simplifying a group structure, the compliance costs (such as audit and tax fees and insurances) can be significantly reduced.

• Offers more assurance for all stakeholders 

A liquidator winding up a company gives more certainty of closure for the directors and shareholders than a dissolution or strike-off, where the company could be restored for a period of up to 20 years.

• Reduces risk to directors  

As tempting as it may be to close the company yourself through dissolution, the full responsibility for the paperwork and any errors you make lies solely with you.

• Independent Insolvency Practitioners handle post-liquidation matters

The individual directors can direct any queries to the appointed IPs.

• Better protection from company being restored to Register

If you choose to dissolve the company rather than use an MVL then there is the risk that the company could be restored back to the Register at a later date.

Considering a Members’ Voluntary Liquidation?

If you have a solvent company and you are currently considering your options for the future, then a confidential chat with our team could help you to make a more informed decision.  Whether you want to close the company in the next 12 months or further down the line, we can help you evaluate and prepare the company for the direction you’re heading in.

Call us on 0808 196 8676 or email help@trusolv.co.uk