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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.

Member’s Voluntary Liquidation
In this article we cover:

What is Member’s Voluntary Liquidation (MVL)?

Member’s Voluntary Liquidation (MVL) is a formal process of winding up the company by its directors or members in which all assets of the company are valuated and distributed by the liquidator in the order of their priority. The reserves in the company are distributed as capital, instead of dividends or salary which makes it more tax efficient, as the shareholders are subject to Capital Gains Tax (CGT), which is more favourable then paying income tax. The liquidation process starts when the resolution is passed in a general meeting. The process is commonly known as solvent voluntary liquidation.

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

  1. The first step taken in member’s voluntary liquidation process is to decide whether to wind up the company or not.
  2. In the second step, the Directors/members start winding up the business company
  3. The assets and liabilities of the companies are reviewed, and the directors are then required to sign the declaration of solvency in the presence of a solicitor or notary to start the liquidation process.
  4. An official board meeting is arranged with the shareholders or members of the company, and a resolution is passed to wind up the company.
  5. An authorised person is appointed as a liquidator in the general meeting who takes over the business and the company is officially in liquidation.
  6. Once the liquidator is appointed at a general meeting, they realise all the assets of the company and settle all the claims made by the creditors (if any).
  7. It is important to settle the claims of creditors first before going forward to distribute surplus assets to the members of the company. After settling the creditor’s claim, surplus assets are distributed among the members of the company.
  8. After the asset distribution process, a final meeting of members is organised and ultimately the company is dissolved.

Note - The appointed liquidator takes the charge of the company. There is a change in your responsibilities as a director.

Also Read: Tax Implications on Closing A Limited Company

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.

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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