In the latest addition to our popular recap series we look at a very specific and popular method for closing a solvent business – a Members Voluntary Liquidation (MVL).
Once again this is different from the other procedures we’ve covered in that it can only be used in specific circumstances but brings benefits and advantages that no other process does because of it.
So why would a director want to close a solvent business that’s making money anyway? What tax advantages does an MVL bring and why the announcements this month’s budget could change things even further?
We answer all these frequently asked questions and more.
The recent story of MVLs
| 2019 | 2020 | 2021 | 2022 | 2023 | 2024 | |
| Members Voluntary Liquidation | 8,573 | 13,046 | 13,564 | 9,488 | 8,958 | 6,928 |
Figures from the London Gazette
Looking at the number of MVL’s rose by over 50% during the 2020 Covid-19 year and rose a further 4% during 2021 before slipping back in 2022 and 2023.
Most likely these rises occurred due to the financial uncertainty caused as the pandemic plagued businesses, with many owners deciding to close and take their profits while the ball was still in their court and conditions were favourable.
However they consecutively began to decrease the following years with 2024 expected to follow the same pattern as economic circumstances began to tighten and fewer companies would qualify for an MVL.
What are the benefits of a Members’ Voluntary Liquidation?
Why would a director take advantage of an MVL to close their company down?
- Tax efficient
Once all debts have been paid off – a condition of the MVL is that they can be cleared within a 12 month period – the remaining funds distributed to shareholders during an MVL will usually be subject to Capital Gains Tax (CGT), which is taxed at a lower rate than income tax. Shareholders may also qualify for Business Asset Disposal Relief (BADR), which can further reduce their tax liability.
- Controlled and orderly winding up
Shareholders choose to initiate an MVL voluntarily and to a timescale of their choosing, allowing them to have total control over the liquidation process in comparison to other forms of winding up and liquidation.
It’s part of a structured and planned process which then allows assets to be distributed in an orderly fashion.
- Preservation of reputation
As the company is solvent and there is no compulsory investigation into directors conduct on behalf of the Insolvency Service, directors’ good name and reputation are preserved for their future business ventures.
- Professional oversight
Even though an MVL is instigated by directors and shareholders, it is still an insolvency process and therefore has to be handled by a licensed professional insolvency practitioner. This ensures that the liquidation is conducted legally and efficiently with all necessary regulatory obligations being met.
How does an MVL work?
- Initial advice meeting
If you’re a director and shareholder then you can arrange an initial consultation to talk things through. This can be arranged for the same day as it typically takes place online through video call or a conversation over the phone.
This could also be a conference call as ideally all board members should attend as we’ll go through the detailed process and implications of entering a members voluntary liquidation including costs, timescales and next steps. If you like what you hear and choose to progress then the terms of business will be sent across to you to review.
- Finalise the company’s affairs
To help keep costs low, we generally recommend that directors finalise their company’s affairs before starting the MVL process. However, these should only be in draft at this stage as the final accounts and final corporation tax return must be up-to-date on the day of liquidation.
- Instruction and declaration of solvency
Once the company’s affairs have been finalised, our terms should be formally agreed, instructing us to proceed with the liquidation. It’s at this stage that the agreed fee must be paid. Any additional costs, which are required to pay third parties during the process, will be settled once the company formally enters liquidation.
A declaration of solvency must be drafted, detailing the company’s remaining assets and liabilities, and confirming that all debts can be settled within 12 months of liquidation if they haven’t already been. This declaration must be sworn before a solicitor or notary by all directors, or, in cases where there are three or more directors, by the majority.
if it is later discovered that the company is not solvent, making a false declaration constitutes a criminal offence.
- Shareholders and directors meeting
Depending on the number of shareholders, the meeting to place the company into a member’s voluntary liquidation can be held almost straight away, If 90% of shareholders are actively engaged in the process. Otherwise notice of between 14 to 21 days must be given depending on the age of the company. Following the conclusion of this meeting, the company can then be placed into liquidation.
- Post liquidation and distribution
Once the company is in members voluntary liquidation, any remaining assets can be realised and distributed firstly to any remaining creditors and then to members.
If all members provide an indemnity, then early distributions can be made while creditor claims are finalised. However, this is sometimes less practical where there is a significant number of shareholders.
Once all other outstanding issues have been dealt with and final clearance obtained from HMRC, then the case can be closed and the company will be formally dissolved three months afterwards.
We hope this has helped explain some of the complexity around members voluntary liquidations but if you’re considering an MVL and have any more questions then please get in touch with us.