Are you considering closing down your solvent company? You might be leaving money on the table if you haven’t looked into Members Voluntary Liquidation (MVL).
MVL can provide significant tax savings and other benefits, making it an attractive option for many business owners.
In this blog post, we will explore the ins and outs of MVL, helping you understand “what is the timeline and process of an MVL” and make an informed decision.
- MVL offers tax efficiency and potential relief through BADR.
- Engaging a Licensed Insolvency Practitioner is key to ensure the successful distribution of assets and satisfaction of creditor claims.
- A Members Voluntary Liquidation process typically takes 3 months, with costs starting from £3,000 plus VAT and disbursements.
Understanding Members Voluntary Liquidation (MVL)
A Members Voluntary Liquidation (MVL) is a formal procedure used to legally end the activities of a company that is financially sound. It involves the liquidation of assets and closing down the business.
The primary purpose of an MVL is to distribute the company’s assets to shareholders as capital rather than income, allowing them to benefit from preferential personal tax rates.
This tax-efficient approach to closing a company can provide significant advantages, including independent liquidator oversight of the closure process, resolution of creditor claims, and the possibility of quick distributions to shareholders.
Members of an MVL play a significant role in the company, taking part in the decision-making process and helping to shape the organisation’s direction.
To ensure a successful MVL, it’s crucial to understand eligibility requirements and potential tax benefits.
Solvent Company Requirements
In order to qualify for an MVL, a company must demonstrate solvency and have the capacity to settle its liabilities in full within 12 months.
The directors must make a formal declaration of solvency, and 75% of shareholders who have been given notice must pass a resolution for winding up the company.
Moreover, companies must possess more than £25k in cash or asset reserves after paying creditors.
A solvent company is one that has sufficient assets to satisfy all of its liabilities and is thus able to fulfill its financial obligations.
Meeting these criteria is essential to ensure that the MVL process can be carried out smoothly and efficiently, providing the desired tax savings and other benefits.
Tax Efficiency and Business Asset Disposal Relief
One of the main advantages of an MVL is the tax efficiency it offers. Proceeds from the MVL are taxed as capital distributions rather than income, which is typically more tax-efficient.
Furthermore, shareholders may be eligible for Business Asset Disposal Relief (BADR), which can reduce the tax rate to 10% through entrepreneur’s relief.
Business Asset Disposal Relief (BADR) is a tax relief that can be availed by shareholders on any funds distributed by the Insolvency Practitioner.
By taking advantage of this relief, shareholders can maximise the benefits they receive from the MVL process, making it an attractive option for winding up a solvent company.
The MVL Process: Step-by-Step Guide
The MVL process involves several essential steps to ensure the orderly conclusion of the company’s operations. These steps include engaging a certified Insolvency Practitioner (IP), gaining shareholder approval and attestation of solvency, and allocating company assets.
It is important to note that the key to a successful MVL is careful planning. During the initial discussion with the licensed insolvency practitioner, the focus of the conversation should be on the most recent accounting information and tax returns filed.
Once the IP is appointed, they will oversee the liquidation process, ensuring that all necessary actions are taken to distribute the company’s assets and satisfy creditor claims.
Assets that are not in cash form, such as property or land, are evaluated for their monetary value, and a fair distribution or allocation is made to the shareholders accordingly.
Engaging a Licensed Insolvency Practitioner
The role of a licensed Insolvency Practitioner (IP) in an MVL is to oversee the liquidation process, ensuring that all necessary actions are taken to distribute the company’s assets and satisfy creditor claims.
Upon appointment, the IP will distribute a list of information requests to company directors,, shareholders, and company accountants. The purpose of this list is to collect the necessary data and documentation required for a successful voluntary liquidation process.
During the initial discussion with the IP, it is crucial to provide accounts up to the point of ceasing trade and settle any corporation tax or other liabilities before setting a date for the MVL meeting.
This will halt the accrual of statutory interest on liabilities contingent debts that haven’t been paid off before voluntary liquidation process itself. Consequently, more funds would be available for shareholders.
Shareholder Approval and Declaration of Solvency
To initiate an MVL, the consent of at least 75% of the shareholders in terms of value must be obtained to reach an agreement.
Shareholders must pass resolutions to appoint a liquidator, with a requirement of 75% consent. This is typically a straightforward procedure, but it is essential to have formal process to ensure that all shareholders are on board with the company members decision to be appointed liquidator to undertake an MVL.
The declaration of solvency is a statement made by the directors of the company that they are confident the company is capable of paying off its debts within 12 months.
This statutory declaration of solvency is crucial to the MVL process, as making a false declaration of solvency is considered a criminal offense.
Distribution of Company Assets
Once the liquidator is appointed, they will promptly initiate an advertisement inviting additional claims from creditors, providing creditors with a minimum period of 21 days to furnish relevant details regarding their claims.
Following this period voluntary liquidation, the liquidator will distribute the company’s assets among the shareholders, providing them with the taxation benefits resulting capital gains tax, from asset distribution.
Funds generated from asset sales and company profits in an MVL are used for a specific purpose. They are primarily allocated to settle any outstanding debts owed to creditors.
Subsequently, the remaining funds are distributed among the company’s shareholders or members. This full capital distribution process ensures a fair and efficient allocation of the company’s assets, maximising the benefits for all parties involved solvent limited company.
Timeline of a Members Voluntary Liquidation
The timeline of a Members Voluntary Liquidation (MVL) is contingent upon the preparation and documentation that is necessary, with asset distribution typically taking 21 days and case closure estimated at a period of 3 months.
It is important to note that the overall timeline for an MVL can vary depending on the specific circumstances of the company and the level of preparation undertaken.
To ensure a smooth and efficient MVL process, it is crucial to engage a licensed Insolvency Practitioner, obtain shareholder approval and declaration of solvency, and then distribute company assets accordingly.
By following these steps and maintaining clear communication with all involved parties, the MVL process can be completed in a timely and orderly manner.
Initial Preparation and Documentation
To speed up the MVL process, it is helpful to complete asset distribution and closure before appointing an IP. This can involve settling any outstanding debts and liabilities, as well as ensuring that all necessary documentation is in order.
By taking care of these tasks in advance, the IP can focus on overseeing the liquidation process and distributing the company’s remaining assets to shareholders.
When engaging with a licensed insolvency practitioner, it is important to focus on the most recent accounting information and tax returns filed.
Accounts should be provided up to the point of cessation of trade, and any corporation tax or other liabilities should be settled prior to setting a date for the MVL meeting.
This will minimise the amount of unpaid liabilities at the date of voluntary liquidation timeline thereafter. Consequently, it will in tax efficient way to future liabilities and help to maximise the funds available to shareholders voluntary liquidation.
Asset Distribution and Case Closure
Once the liquidator has received all necessary information and creditor claims have been addressed, they will distribute the company’s assets to shareholders.
This can involve selling assets at auction or distributing assets in kind, depending on the specific circumstances of the company and the preferences of the shareholders.
After the distribution of assets, the liquidator will seek HMRC clearance to confirm that all taxes and liabilities have been settled.
Once clearance has been obtained, the case can be closed, signifying the completion of the MVL process.
This final step is essential for ensuring that all legal and financial obligations have been met and that the company has been wound up in a proper and orderly manner.
Costs Involved in an MVL
The cost of an MVL typically starts at £3,000 plus VAT and disbursements. This cost is comprised of liquidator fees and disbursements, which can vary depending on the specific circumstances of each case.
It is important to understand the factors that can influence MVL costs in order to accurately estimate the expenses involved in undertaking this process.
While the cost of an MVL can vary, it is generally considered to be a cost-effective option for solvent companies looking to wind up their operations and distribute assets in a tax-efficient manner.
By understanding the costs involved and taking steps to minimise expenses, business owners can ensure that they receive the maximum benefits from the MVL process.
Factors Affecting MVL Costs
There are several factors that can influence MVL costs, including the complexity of the business, the size of the company, the degree to which matters have already been resolved, and the fees charged by the liquidator.
For example, a more complex case, a larger company, or a higher number of creditors may necessitate additional time and resources to resolve, leading to higher MVL costs.
Understanding these factors is essential for accurately estimating MVL costs and ensuring that you are prepared for the expenses involved in the process.
By being aware of the potential costs and taking steps to minimise them, you can maximise the benefits of an MVL and ensure a smooth and efficient liquidation process.
Tips for Minimising MVL Expenses
There are several strategies for minimising MVL expenses, including seeking advice from experts and utilising online resources.
Consulting experts can be beneficial in minimising MVL expenses, as they can provide guidance on which assets should be sold and which should be transferred in specie.
This can help to ensure that assets are distributed in the most tax-efficient manner possible, maximising the benefits for shareholders.
In addition to expert advice, a range of online resources are available to assist with minimising MVL expenses.
These resources can include calculators to estimate costs, websites providing information on the MVL process and timeline, and forums where you can seek advice from others who have gone through the process.
By taking advantage of these resources, you can gain valuable insights and tips for navigating the MVL process and minimising expenses.
MVL vs. CVL: Comparing Voluntary Liquidation Options
When considering voluntary liquidation options, it’s important to understand the differences between Members Voluntary Liquidation (MVL) and Creditors Voluntary Liquidation (CVL).
The main distinction between the two lies in the company’s financial status and the distribution of funds.
In an MVL, the company is solvent, and distributions are made to members. In contrast, a CVL is pursued when a company is insolvent, and funds are allocated to creditors.
Understanding these differences is crucial when deciding which liquidation option is best suited for your company.
An MVL is ideal for solvent companies looking to close down in a tax-efficient manner while providing shareholders with preferential tax treatment.
On the other hand, a CVL is appropriate for insolvent companies needing to allocate funds to their creditors in order to settle outstanding debts.
Solvent vs. Insolvent Companies
The primary distinction between solvent and insolvent companies is their ability to satisfy liabilities. Solvent companies possess sufficient assets to settle their liabilities, while insolvent companies lack the requisite assets to settle their liabilities.
This distinction is important when considering whether an MVL or CVL is the appropriate liquidation option for your company. An MVL is applicable only to solvent companies, providing them with tax efficiency and other benefits when winding up their operations.
In contrast, a CVL is pursued when a company is insolvent, with the primary goal of allocating funds to creditors in order to settle outstanding debts. Understanding your company’s financial status is crucial in determining the most appropriate liquidation option.
Distribution of Funds
The distribution of funds in an MVL and CVL varies significantly. In an MVL, the main use of funds generated from asset sales and company profits is to settle any outstanding debts owed to creditors.
Any remaining funds are distributed among the company’s shareholders or members. This distribution process ensures a fair and efficient allocation of the remaining surplus funds and company’s remaining assets thus, maximising the benefits for all parties involved.
In a CVL, however, the funds collected by the insolvency practitioner are allocated to creditors straight away, as a whole.
This distribution process is focused on satisfying the claims of creditors and does not provide the same tax advantages for shareholders as an MVL.
Understanding the differences in fund distribution between MVL and CVL is essential when choosing the most appropriate voluntary liquidation option for your company.
Frequently Asked Questions
How long does the MVL process take?
Typically, it takes about 3-5 months for an MVL process to be completed. During this time shareholders usually get their funds within the first three months and the remaining outstanding balance is issued once HMRC clears the case.
What are the timescales for MVL?
Most MVLs can be completed in around 3-4 months, however the process can take up to 12 months and will vary from company to company.
It is important that careful consideration of the timescales and processes is taken to ensure that all shareholders are informed of the decisions at each stage.
What is the timeline for company liquidation?
The timeline for company liquidation is dependent on the size of the company’s business proceedings otherwise, its state and the complexity of its existing and contingent liabilities, existing and contingent debts, and assets. Generally, the liquidation process only takes 6-24 months to complete.
Therefore, it is important to be aware of the timeline when considering voluntary liquidation process.
In conclusion, a Members Voluntary Liquidation (MVL) is a tax-efficient and advantageous option for solvent companies looking to wind up their operations.
By understanding the requirements, process, and timeline of an MVL, as well as the costs involved and strategies for minimising expenses, business owners can make an informed decision about whether this liquidation option is right for their company.
With the potential for significant tax savings and benefits for shareholders, an MVL may be the ideal solution for closing down your solvent company in a financially advantageous manner.