What is Members Voluntary Liquidation (MVL)?

A Members Voluntary Liquidation (MVL) is the formal process taken to wind up the affairs of a solvent company.

A solvent company is one that has more assets than liabilities and can therefore pay off all its debts. This process involves directors, shareholders, and a licensed insolvency practitioner working together through the liquidation process and ensuring legal requirements are met. Whilst it may be possible to distribute funds to shareholders and have the company dissolved without an MVL, it is often beneficial to enter into an MVL to maximise tax advantages for the company and the shareholders

The company directors are responsible for issuing a declaration of solvency, which confirms that the company can settle its debts within a specified period, typically 12 months. Once this declaration is made, the assets and liabilities of the company are assessed, and any remaining assets are distributed to shareholders.

Why Choose an MVL for Your Company Liquidation?

There are various benefits that accrue to the company directors and shareholders of a limited company from entering into an MVL. For instance, the assets can be effectively distributed; this is usually the case when there is maximisation of tax reliefs while at the same time costs are minimised. Without undertaking a Members Voluntary Liquidation, one would simply be dissolving a solvent business, which may raise taxes. MVL could be entered into, wherein there would be the possibility of benefiting from capital gains tax treatment as opposed to income tax and thereby reducing overall tax liabilities.

Certain shareholders may also qualify for Business Asset Disposal Relief (previously known as Entrepreneurs Relief), which lowers the tax rate on gains to 10%. This makes Members Voluntary Liquidation (MVLs) particularly advantageous for directors seeking to exit business ventures while maximising returns.

The Members Voluntary Liquidation (MVL) Process

The formal liquidation procedure for a Members Voluntary Liquidation (MVL) typically spans six months to a year, though this timeline can vary depending on the complexity of the business. The process includes:

Declaration of Solvency – The directors must sign a statutory declaration confirming the company’s ability to pay all debts within a certain period of time.

Appointment of a Licensed Insolvency Practitioner – The practitioner oversees the insolvency process, ensuring compliance and managing the distribution of assets to shareholders.

Asset Realisation and Distribution – The company’s assets are sold, and the proceeds are used to settle any remaining debts. Surplus funds are distributed to shareholders.

Finalisation and Dissolution – Once all liabilities have been cleared and assets distributed, the company is formally dissolved.

MVL vs CVL: Key Differences

The most important distinction between Members Voluntary Liquidation (MVL) and Creditors Voluntary Liquidation (CVL) is within the financial state of the company. A Members Voluntary Liquidation (MVL) applies to a solvent business, while a CVL (Creditors Voluntary Liquidation) applies to insolvent ones. Both of these processes are voluntary, but in a CVL, the company’s contingent liabilities and debts are prioritised, with proceeds from the sale of assets directed toward creditors. In contrast, a Members Voluntary Liquidation (MVL) focuses on distributing residual funds to shareholders after creditors have been paid in full.

Book a Free Insolvency Consultation Today

Directors often need the advice and expertise of an insolvency practitioner if their company is about to cease trading but, if they can pay creditors in full of a return to shareholders, there may be more to the process. The professional insolvency service can help oversee the overall process to ensure fairness and adherence to legal protocols. Directors aiming to place their company into liquidation under either insolvency process must understand their legal duties and obligations.

If you are considering restructuring or closing your company, professional advice is paramount. Be it to discuss the information on tax implications, understand your indemnity responsibilities, or assess the viability of restructuring, a free consultation with a licensed professional can help to clarify your best next steps. A comprehensive report from your insolvency practitioner can also outline the steps involved in the MVL and ensure that you are informed at all stages of the liquidation process.

Contact us for a free consultation to discuss whether an MVL is the right choice for your limited company.