Members Voluntary Liquidation (MVL)

Why is Voluntary Liquidation Tax Efficient?

Up 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.

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.

On 1 March 2012, the ESC C16 legislation was enacted.  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 unless the company is placed into Voluntary Liquidation.

A solvent liquidation instigated by the directors and approved by shareholders is known as a Members Voluntary Liquidation (MVL).

A distribution to shareholders by a Liquidator is treated as a capital gain and not taxed as income.

Members Voluntary Liquidation (MVL)

The MVL process allows the shareholders to close a solvent Company and for the surplus assets to be distributed to them by the Liquidator who must be a Licensed Insolvency Practitioner (IP). 

The MVL process is a standard routine as follows:

1. 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:
Send a notice to the Shareholders for an General Meeting (“GM”) of the Company to be convened.

The Directors will also resolve to sign a Declaration of Solvency

To appoint one Director to be the chair person for the GM.

2. 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.

3. 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.

4. General Meeting (GM)

The nominated Director to act as chair person must be present at the GM however the Shareholders will have the opportunity to either attend in person or vote by postal proxy.
If there are 2 or more Shareholders, a quorum must be obtained which requires at least 2 Shareholders to vote, again either in person or by proxy.
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.

5. 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.

6. 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.

MVL Bond Rates

Effective 1st January 2013

Asset Value Premium MVL
£0 – £499 £30 £15
£500 – £5,000 £60 £30
£5,001 – £10,000 £60 £30
£10,001 – £25,000 £120 £60
£25,001 – £50,000 £300 £150
£50,001 – £100,000 £400 £200
£100,001 – £250,000 £600 £300
£250,001 – £500,000 £1,200 £600
£500,001 – £1,000,000 £1,500 £750
£1,000,001 – £2,000,000 £2,300 £1,150
£2,000,001 – £3,500,000 £2,700 £1,350
£3,500,001 – £5,000,000 £3,000 £1,500
£5,000,001 plus Refer Refer

Earn a Share of Insolvency Fees

Findlay James are unique in the marketplace by providing our Accountant contacts access to Insolnet, an online case administration system, that allows Accountants to set up and participate in the case administration process, for both solvent and insolvent cases, and thereby earn a share of the authorised fees.

Full training and technical support is provided.

Findlay James also offer a traditional approach whereby we deal with all client matters directly, where the Accountant is content to pass the matter over to an Insolvency Practitioner and let us deal with the matter thereafter. We offer competitive prices compared to the general market as a result of efficient systems reducing our administrative overheads whereby the savings can be passed onto clients.

Please contact Alisdair Findlay on 07977 938648 or if you would like to discuss a specific case or the Insolnet business opportunity in more detail.

Get in Touch

Please contact us via phone at 01242 576 5550 or request a callback