Member’s Voluntary Liquidation (MVL)

For every entrepreneur there comes a time when they decide to wind up their business, even if it’s been running successfully. This could be because they are moving on to do different things, retiring or have achieved the purpose the company was setup for. In such cases, the entrepreneur may want to extract every penny from the company in the most tax efficient way. This can be achieved through Member’s voluntary liquidation also referred to as MVL.

In this article we cover:

• What is Member’s Voluntary Liquidation (MVL)?
• Reasons for voluntarily liquidating a company
• Process of liquidating a company voluntarily
• What is declaration of solvency?
• Role of liquidator

What is a Members Voluntary Liquidation (MVL)?

A Members Voluntary Liquidation is a formal process used to close a solvent company in an orderly and tax-efficient manner. It is also known as a solvent liquidation or members voluntary winding up. This procedure is appropriate when a company’s directors can confirm that the company can pay its debts in full within 12 months.

Unlike insolvent liquidations, an MVL allows directors and shareholders to wind up the company without the involvement of creditors, ensuring a smooth closure.

Benefits of Members Voluntary Liquidation

• Tax efficiency: Capital gains treatment reduces tax liabilities.

• Orderly closure: Professional management by an insolvency practitioner.

• Legal protection: Directors avoid personal liability when the process is correctly followed.

• Compliance: Ensures all debts and taxes are settled before dissolution.

How to Start a Members’ Voluntary Liquidation

To start an MVL, the directors must:

1. Make a statutory declaration of solvency.
2. Call an extraordinary general meeting where shareholders pass a resolution to wind up the company.
3. Appoint a licensed insolvency practitioner as liquidator.
4. The liquidator then manages the winding up and final dissolution.

Following the latest 2025 guidance, insolvency practitioners must also obtain tax clearance from HMRC before distributing assets to shareholders, ensuring no outstanding tax liabilities remain

Reasons for voluntarily liquidating a company

There are various reasons of voluntarily liquidating a company but the main reasons comprises of –

1. Retirement by choice
2. Stepping down from family business and no person coming forward to run it.
3. Don’t want to run the business anymore
4. Moving to pursue different opportunities

Members’ Voluntary Liquidation Process

• Directors Make a Statutory Declaration of Solvency:
  Directors must swear a statutory declaration confirming the company can pay all its debts in full within 12 months. This declaration must be made before a solicitor or commissioner for oaths and is a legal requirement. Providing false information is a criminal offence.

• Pass a Special Resolution at an Extraordinary General Meeting (EGM):
  Shareholders must approve a resolution to wind up the company and appoint a licensed insolvency practitioner as liquidator. At least 75% of members must agree.

• Advertise the Resolution:
  Within 14 days of passing the resolution, the appointment of the liquidator must be advertised in the London Gazette to notify any potential creditors.

• File the Declaration and Resolution:
  The signed statutory declaration and resolution must be sent to Companies House (or the Accountant in Bankruptcy for Scottish companies) within 15 days.

• Liquidator Takes Control:
  Once appointed, the liquidator assumes control of the company’s affairs, replacing the directors’ responsibilities.

• Liquidator Realises Assets and Settles Debts:
  The liquidator sells company assets, pays outstanding creditors in full, and resolves any claims.

• Distribute Remaining Assets to Shareholders:
  After debts are settled, remaining funds or assets (including non-cash assets “in specie”) are distributed to shareholders.

• Obtain Tax Clearance:
  The liquidator obtains clearance from HMRC confirming all tax liabilities have been settled before finalising the liquidation.

• Company Dissolution:
  The liquidator files the final documents with Companies House, including HMRC references, details of assets and liabilities, bank details, and identification documents. The company is then formally dissolved, typically within 12 months, depending on the complexity of the liquidation.

Also Read: Tax Implications on Closing A Limited Company

Tax Implications of Members Voluntary Liquidation

Distributions in a members voluntary liquidation are treated as capital gains, not income, so shareholders usually pay Capital Gains Tax (CGT) instead of higher income tax rates. With Business Asset Disposal Relief (BADR), qualifying gains are taxed at 10% until 5 April 2025, but this rises to 14% from 6 April 2025 and 18% from April 2026. Shareholders should act before these changes to benefit from the lower rate.

Note that HMRC no longer provides formal tax clearance for MVLs, so liquidators must ensure all tax matters are settled before closing the case. Always check with your accountant to confirm BADR eligibility and for the latest tax advice.

What is declaration of solvency?

Declaration of solvency includes the following –

1. Statement declaring director assessment and belief of paying its debts.
2. Name & address of the company
3. Name & address of the company’s directors
4. How much time a company will take to pay its debts. It should not be more than 12 months at the time of liquidation.
5. Statement of company’s assets and liabilities.

Solvent Liquidation vs Other Liquidation Types

When deciding how to close a company, it’s important to understand the difference between a solvent liquidation, such as a Members Voluntary Liquidation (MVL) and other liquidation types like Creditors’ Voluntary Liquidation (CVL).

MVL vs Company Strike Off

While members voluntary liquidation and company strike off are both methods to close a company, they differ in process, tax treatment, and suitability.

• MVL is a formal process involving a licensed insolvency practitioner, suitable for companies with significant assets. It ensures distributions are treated as capital gains, often resulting in lower tax liabilities.

• Company strike off is a simpler, less expensive process, but treats distributions as income, which can lead to higher tax bills. It is generally recommended only for companies with minimal or no assets.

For companies with assets exceeding £25,000, an MVL is usually the more tax-efficient and safer choice.

Role of the Insolvency Practitioner in MVL

A licensed insolvency practitioner plays a vital role in the members voluntary liquidation process by:

• Verifying Solvency: Confirming that the company can pay its debts in full within 12 months through a statutory declaration of solvency.

• Managing the Liquidation: Taking control of the company’s affairs, realising assets, and overseeing the winding-up process.

• Ensuring Legal Compliance: Making sure all legal and regulatory requirements are met throughout the liquidation.

• Settling Debts: Paying off any outstanding creditors and liabilities before distributing remaining funds.

• Distributing Assets: Distributing the company’s remaining assets to shareholders under the law.

• Providing Assurance: Offering confidence to shareholders, creditors, and HMRC that the liquidation is conducted properly and transparently.

Role of liquidator

Liquidator is an authorised insolvency practitioner appointed in the general meeting to take control over the liquidation process of the company. After their appointment, they take control over the business and performs the following responsibilities as a liquidator -

1. Settlement of any legal disputes or outstanding contracts
2. Meeting paperwork deadlines and to keep authorities informed.
3. Making payments to creditors.
4. Paying the cost of liquidation and the final VAT bill
5. To keep creditors informed
6. Involve creditors in decision (wherever necessary)
7. Selling company’s assets in order to pay money to the creditors
8. Taking Interviews of directors to identify what went wrong in the business
9. To get company remove from the company register.
10. Distribute the funds to shareholders

MVL can be a complex process and hence having an experienced liquidator by your side is recommended, as they are ultimately responsible for distributing the funds from the company to shareholders. Contact us to know more about our preferred partners for liquidation.

Read More: IR35 Tax Efficient Termination

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