What is an MVL?
A Members’ Voluntary Liquidation (MVL) is a process that is used to close down a solvent company. It involves the appointment of a liquidator, who is responsible for realising the company’s assets and distributing the proceeds to the shareholders.
An MVL is typically initiated by the directors of the company when they believe that the company is no longer needed and that it is in the best interests of the shareholders to wind it up.
An MVL is often used to close a company when it is likely to be the most tax-efficient route for shareholders.
The process into an MVL
Mackay Goodwin can guide you through each step of putting a company into an MVL:
1. Hold a board meeting
The directors of the company must hold a meeting to consider the company’s financial position and decide whether it is appropriate to put the company into an MVL. If the company still has outstanding debts to pay, they must also determine that the company will pay these debts in full within 12 months of the start of the liquidation.
2. Declaration of solvency
One of the directors must then prepare a Declaration of Solvency, confirming that the company will be able to pay its debts in full within 12 months and that it is in the best interests of the shareholders for the company to be wound up.
3. Call a general meeting of shareholders
The directors must then call a general meeting of shareholders to vote on a resolution to put the company into liquidation. The resolution must be passed by a 75% majority of the shareholders voting (or, if there are only two shareholders, both must agree).
4. Appoint a liquidator
If the resolution to put the company into liquidation is passed, the shareholders can appoint a Mackay Goodwin liquidator to oversee the process.
5. Realise assets
The liquidator will then take control of the company’s assets and work to realise them in order to pay off the company’s debts.
6. Distribute assets
After the debts of the company have been paid, all of the remaining assets will be distributed to the shareholders in accordance with the company’s articles of association.
In a lot of MVLs, all of the liabilities can be settled and assets realised ahead of the start of the liquidation. Where that happens, shareholders may be able to receive their distribution within a few days of the liquidator’s appointment.
Advantages of an MVL for directors and a company
There are several advantages of an MVL for company directors and shareholders. We have summarised the key ones below.
Tax efficiency
An MVL can be a tax-efficient way for shareholders to receive the proceeds from the sale of the company’s assets. The shareholders may be able to claim Business Asset Disposal Relief (formerly Entrepreneurs’ Relief), which allows them to pay Capital Gains Tax at a reduced rate on the value of their shares.
Choice and timing
The directors and shareholders decide when to close the company and choose the licensed insolvency practitioner who will act as liquidator.
Closure
An MVL can provide a feeling of closure for the directors and shareholders, allowing them to move on from the company and its affairs.
Flexibility
An MVL can be a flexible way for shareholders to receive the value of their shares, as the process can be tailored to the specific needs and circumstances of the company and its shareholders. For example, the distribution to shareholders could be in the form of less liquid assets, not just cash. This is known as a distribution in specie.
A formal close
Because a licensed liquidator deals with creditor claims and formally closes the company’s affairs, an MVL can give directors more certainty than an informal dissolution, which can be reversed if the company is later restored to the register.