Sometimes, businesses simply reach the end of their natural life, or the owners might decide it’s time to close up shop for strategic reasons. In these cases, a members’ voluntary liquidation (MVL) can be a really good way to handle the closure in a clean, organized, and tax-smart way.
Unlike other types of liquidation that happen when a company is in financial trouble, an MVL is used when the business is actually solvent; it’s a way to wind things down while making sure everyone who’s owed money gets paid
What Is Members’ Voluntary Liquidation?
MVL is a legal process undertaken by the directors and shareholders of a solvent company to close down its operations. In this context, “solvent” means that the company is capable of paying all its debts, including taxes and other obligations, within a specified time frame (usually 12 months).
The MVL process involves appointing a licensed insolvency practitioner to oversee the liquidation, ensuring that the company’s assets are distributed fairly and that any remaining obligations are resolved. The process is often chosen for companies that are no longer needed, such as:
- Family-owned businesses with retiring owners.
- Companies created for one-time projects.
- Businesses transitioning to a new structure.
Key Steps in the MVL Process
Board Resolution
The process begins with the company’s directors passing a resolution to initiate the MVL. This decision should be based on a thorough review of the company’s financial status to confirm solvency.
Declaration of Solvency
A formal Declaration of Solvency must be signed by the majority of the directors. This document states that the company can pay its debts within 12 months of the liquidation process starting. It also includes a statement of the company’s assets and liabilities, offering transparency to stakeholders.
Shareholders’ Meeting
Shareholders must approve the resolution to wind up the company. A 75% majority is required for the resolution to pass. Once approved, the company formally enters into Members’ Voluntary Liquidation.
Appointment of a Liquidator
A licensed insolvency practitioner is appointed as the liquidator. They take control of the company’s affairs, including:
- Realizing and distributing assets.
- Settling debts with creditors.
- Ensuring compliance with legal requirements
Asset Distribution
The liquidator will oversee the sale of the company’s assets and distribute the proceeds to creditors first. Any surplus funds are then distributed to shareholders in line with their ownership stakes.
Final Reporting and Dissolution
After all assets are distributed and debts settled, the liquidator prepares a final report detailing the liquidation process. This report is submitted to Companies House, and the company is officially dissolved.
Benefits of Members Voluntary Liquidation
Tax Breaks
A members voluntary liquidation help can be very tax-efficient. Shareholders might be able to take advantage of Business Asset Disposal Relief (which used to be called Entrepreneurs’ Relief) or pay Capital Gains Tax, which are often much lower than income tax rates. This can make a real difference to the amount you take home.
Clear and Transparent Process
MVL makes sure everyone gets paid what they’re owed, and any leftover assets are distributed fairly. This structured approach helps avoid arguments and keeps things open and honest for everyone involved.
Helps Protect Directors’ Reputation
Unlike liquidations that happen because a company is in trouble, an MVL is a planned decision made by the directors. This shows they’re acting responsibly and ethically, which protects their reputation.
Simplifies Business Closure
An MVL provides a simple and legally sound way to close a solvent company. It saves a lot of time and hassle compared to other ways of doing things. It’s much less of a headache administratively.
Flexibility in Asset Management
Shareholders get some flexibility in how they receive their share of the assets. They can take it as cash, or they might be able to receive assets “in-specie,” which means things like property or shares. This gives people options depending on what works best for them.
When Should You Consider an MVL?
An MVL is suitable in several scenarios:
- Business goals achieved: If the company has served its purpose, such as completing a project or achieving specific objectives.
- Retirement: For business owners planning to retire without succession or further expansion plans.
- Corporate restructuring: When reorganizing the corporate structure or transferring operations to another entity.
- Dormant companies: For companies no longer trading and holding assets that need to be distributed to shareholders.
