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SPONSORED: A Members' Voluntary Liquidation (MVL) is as a formal process that allows the directors of solvent companies to voluntarily wind up the businesses and distribute assets to shareholders. An MVL can also offer benefits other company closure processes do not, particularly when a client is retiring, taking up full-time work or has a company that’s dormant but with significant retained profits. Here, Richard Simms on the MVL process, which companies might qualify and the potential advantages of using this method to close a client’s business.
To go through an MVL, a company must be considered financially healthy and capable of paying off its debts within 12 months.
The directors of the company appoint a liquidator, who must be a licensed insolvency practitioner, to oversee the MVL process and make sure the company’s affairs are closed in compliance with legal requirements.
During the MVL the solvent company pays off its debts in full and the remaining assets are distributed fairly to shareholders in line with their shareholdings.
An MVL differs from other types of liquidation in a few important ways. In an MVL:
An MVL can be used to close a solvent company when the directors are legitimately able to make a statutory declaration of solvency. If made fraudulently, the directors may be liable to fines or prosecution.
If your client’s company is able to take each of the following steps, an MVL could be the right choice:
One of the main benefits of an MVL is the potential tax advantage. With an MVL, any funds remaining after paying creditors can be distributed to shareholders as capital rather than income.
This means shareholders can pay Capital Gains Tax rather than Income Tax. This reduces shareholders’ tax obligations because Capital Gains Tax is set at a lower rate than Income Tax.
Most directors can also claim Business Asset Disposal Relief (previously known as Entrepreneurs’ Relief), which means they pay just 10 per cent tax on qualifying assets.
The MVL is handled by a licensed insolvency practitioner with in-depth experience in managing the process from beginning to end.
This means it’s generally a faster and simpler process than if the company directors were to sell assets, distribute funds and close the company themselves. Instead, the insolvency practitioner guides the process, while your client focuses on closing down operations smoothly.
Licensed insolvency practitioners are fully qualified and experienced in company closure. We have specific steps we take to make sure the process is carried out correctly and legally.
We ensure that payments to creditors and shareholders are dealt with fairly and that the company is wound up following legal requirements.
Nothing is overlooked and at the end of the process, your clients can enjoy the full benefits of their efforts as directors and shareholders.
An MVL could be the best option for directors ready to close their solvent company with minimal stress and potential tax savings. FA Simms has been working with IFA accountants to do what’s best for their clients for over a decade, including guiding clients through an MVL. The FA Simms team organises the whole process, handles all the paperwork, and guides the company through each step.
If your client is considering closing their company and you want to know if liquidation is right for them, contact FA Simms:
Richard Simms is Managing Director, FA Simms