Liquidation is the legal procedure to deal with the closure of a Limited Company, once it has reached the end of it’s useful life.

Member's Voluntary Liquidation (MVL) is the Liquidation procedure for a Company that is solvent – i.e. it has or will pay all outstanding amounts due to it's suppliers, bank and finance creditors, tax to HMRC, employees and any other loans or expenses.

Liquidation involves the Director’s placing the Company into the hands of the Liquidator, who takes control of the Company and manages the winding-up and conclusion of the Company’s affairs.

Only a Licensed Insolvency Practitioner (IP) can legally be appointed Liquidator. When the company’s affairs are concluded by the Director(s), and there is a surplus to be distributed to the Shareholders (aka members) then a Liquidator can be appointed at minimum cost, and on a fixed cost basis.

The Liquidator will distribute surplus funds to shareholders and then dissolve the Company shortly thereafter.

The shareholders can then seek entrepreneurial relief in their personal tax return to achieve the lowest possible tax rate of 10%.

This type of liquidation is for solvent companies. If your company is insolvent, you should consider a creditors voluntary liquidation.

Why is Voluntary Liquidation Tax Efficient?

The Old Law

Prior to 1 March 2012, H M Revenue & Customs could grant a concession to company shareholders known as the Extra-Statutory Concession C16 (ESC C16) which enabled the shareholders (known as "members" under company and insolvency law) of a Limited Company to close a solvent Company without the need to appoint a Liquidator. Accordingly, the matter could be handled by the company’s accountant, without the added expense of a Licensed Insolvency Practitioner (IP).

The Directors were allowed to distribute any surplus funds or assets to the Shareholders as Capital Receipts rather than as a Dividend.

This therefore meant that the tax on that distribution was taxed as a capital gain, rather than income, hence attracting a lower rate of tax.

The New Law

Effective from 1 March 2012, the ESC C16 legislation came into force.

The legislation stipulates that where a company has surplus cash or assets available to distribute of £25,000 or less, the concession would be automatic under the new legislation and such distributions can be treated as a Capital Receipt by the Shareholder.

But where the Company distributes more than £25,000, it will be taxed as a dividend at up to 45% Income Tax rates - unless the company is placed into Voluntary Liquidation and a Liquidator appointed.

A distribution to shareholders by a Liquidator is treated as a capital gain and not taxed as income. In addition, shareholders can claim Entrepreneurial relief for up to £5 million and achieve a tax rate of just 10%.

The MVL Process

The MVL process is a straightforward, statutory procedure that follows the same routine every time:

Board Meeting

The Directors of the company hold a Board meeting to review the position of the company and on reaching agreement to proceed to place the Company into Liquidation by way of an MVL, pass board resolutions to:

  1. Send a notice to the Shareholders for a General Meeting ("GM") of the Company to be convened.
  2. The Directors will also resolve to sign a Declaration of Solvency
  3. To appoint one Director to be the chair person for the GM.

Notice of General Meeting (GM)

The notice of the GM must be sent to all Shareholders detailing the resolutions to be voted on at the meeting. This notice has to provide Shareholders at least 21 days clear notice unless the Memorandum and Articles state differently.

The Shareholders can consent to short notice of this meeting with more than 95% of Shareholder approval.

Statutory Declaration of Solvency

The Statutory Declaration of Solvency must be signed by the majority or all of the Directors prior to the GM and it must be sworn in front of a Solicitor or Commissioner of Oaths.

A financial statement is attached to the Statutory Declaration of Solvency detailing the assets and liabilities of the Company. This statement must be made at a date within 5 weeks prior to the GM.

By signing the statement, the Directors are confirming that they have looked into the affairs of the Company and have reason to believe that it can pay its debts in full together with statutory interest within 12 months.

General Meeting of Shareholders (GM)

The nominated Director to act as chairperson chairs the meeting and signs the approved resolutions and meeting minutes.

The Shareholders have the option to either attend in person or vote by postal proxy. In most cases, the matter can be dealt with by email and registered post.

Shareholder resolutions will be voted on at the GM to include:

  1. A Special Resolution to place the Company into Voluntary Liquidation.
  2. An Ordinary Resolution to appoint a specified Liquidator.
  3. An Ordinary Resolution to agree the Liquidators’ fees and disbursements.
  4. A Special Resolution to allow the assets to be distributed in whole or in specie.

Appointment of Liquidator

Following the passing of the above resolutions, the Liquidator appointed will notify Companies House of his or her appointment and file a copy of the Declaration of Solvency.

The Liquidator will also advertise his or her appointment in the London Gazette and if necessary, 1 local newspaper. A copy of this will also be sent to all known Creditors, should there be any remaining, with a proof of debt form.

The Liquidator will also take out a specific bond to insure the assets of the company against misappropriation.

Distribution of Assets

The Liquidator will distribute the surplus assets of the Company, usually cash at bank, once all Creditors have been paid in full together with Statutory Interest, as appropriate.

The Shareholders will then be liable for capital gains tax on the taxable gain as represented by the surplus over the nominal value of their shareholding.

Liquidating Your Company Online

The traditional cost of an MVL has been around £3,000 upwards depending on the complexity of the case. But for a straight forward cash only MVL, we have reduced these costs by giving you direct access to the mvlDirect secure online system.

Once you have accepted your quote, we will send you secure login details that allow you to log into your account, and input the company details that we require to deal with the liquidation. Our system is based on our secure, encrypted web platform on dedicated servers located in our head office Data Centre in Cheltenham. mvlDirect is leading the market in terms of effective use of web technology to offer an efficient and fairly priced Liquidation service.

How Long does a Members Voluntary Liquidation take?

It will normally take a few weeks to deal with the formalities detailed above to place the company into Liquidation and appoint a Liquidator. It will then take a few more weeks to process the payments to shareholders, following which the company can be dissolved and removed from the register at Companies House.

How much does an Members Voluntary Liquidation cost?

MVL Direct's online liquidation system has streamlined the administration work involved in an MVL, and we have passed on the cost savings to our clients.

mvlDirect can now offer a straightforward cash MVL service for:

inclusive of disbursements.*
(There are No Hidden Costs)

* £2000 fixed fee is only available to companies that have less than £250,000 cash in the bank and all liabilities/expenses paid.

To find out how much your MVL will cost click below to get an instant online quote.

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