Members Voluntary Liquidation (MVL)

Why choose an MVL

  • Where a company looks to cease trading but has assets of more than £25,000 to distribute
    to its shareholders this can now only be done through an MVL.
  • For tax purposes a return of capital is treated as a capital gain in the hands of the
    shareholders.
  • Provided certain conditions are met, Entrepreneurs Relief may be available, enabling a lower
    rate of tax to be applied to any capital gain.
  • For a company to enter into an MVL it must be able to pay all its debts (plus interest) within
    12 months.

Procedure

  • The first step in an MVL is for the board of Directors to meet and formally decide that the
    company be placed into solvent liquidation and that a liquidator be appointed.
  • In order to do this a meeting of the Company’s shareholders must be called.
  • The Directors must also arrange for a formal declaration of solvency to be sworn at a
    meeting of directors no longer than 5 weeks before the meeting of shareholders.
  • The Statutory Declaration of Solvency is the document which sets out the Company’s formal
    financial position and must be sworn by the Directors before a Solicitor.
  • It must include:
    • An estimate of the realisable values of the Company’s assets
    • The value of creditors claims
    • An estimate of the costs of liquidation and associated costs
    • An indication of how much is likely to be returned to shareholders
  • Unlike a CVL there is no Creditors Decision Procedure as creditors are to be paid in full, with
    interest.
  • A meeting of the shareholders is called to pass the resolutions necessary to place the
    company into MVL and to appoint a liquidator.
  • Once in place it is the liquidators job to realise any assets in the company, pay creditors and
    then make a return of capital to the shareholders.
  • In practical terms a liquidator will normally work closely with a company’s existing
    accountant in respect of any corporation tax matters.
  • A final corporation tax return must be completed up to the date of the liquidation,
    submitted to HMRC, and any tax due paid.
  • When all creditors claims have been agreed and settled, the liquidator will make a return of
    capital to the shareholders. The timing and the amount of returns of capital are usually
    agreed between the liquidator the shareholder and their own tax advisors, in order to take
    maximum benefit of the relevant allowances and reliefs available.
  • After final acknowledgement from HMRC that there are no outstanding tax issues to be
    dealt with, the liquidator can close the MVL and seek his/her release.

Implications for Directors

Unlike an insolvent liquidation, in an MVL there is no requirement for the liquidator to prepare and
submit a report to the Department of Business, Energy & Industrial Strategy on the Directors’
conduct during the period prior to the liquidation.

However, if it is found that the Directors swore a declaration which was false, they may be liable for
a fine or imprisoned.

If the company subsequently becomes insolvent, or it is found that the company will no longer be
able to pay its debts within 12 months, the MVL cannot continue and the liquidator must take steps
to convert the liquidation to a CVL.