Members’ Voluntary Liquidation

Members’ Voluntary Liquidation is a winding up procedure for solvent companies. A members’ voluntary liquidation can be commenced if the directors of the company are able to swear a statutory declaration of solvency and at least 75% of the company’s voting members have agreed to pass a special resolution to wind up the company voluntarily and to pass an ordinary resolution (50%) to appoint a Liquidator of the company. Following the completion of the liquidation the company will be dissolved.

A MVL is typically used where a solvent company has served its purpose and is a tax efficient way of distributing assets to the company’s members by way of capital distributions subject to capital gains tax (CGT) rather than as income subject to income tax (IT) and potentially NIC.

The use of MVLs can also enable the tax efficient restructuring of a group of companies.

The directors must make a sworn Declaration of Solvency, which effectively confirms that they have examined the company’s financial position and that the directors are of the opinion that the company will be able to pay all its debts plus statutory interest within 12 months (or maybe less). The Declaration must disclose all assets and liabilities, must be declared before a solicitor and has to be made 5 weeks or less before the MVL commences and be filed at Companies House within 15 days of the MVL commencement.

The Liquidator’s function is to realise the assets, pay any debts outstanding plus statutory interest thereon (after costs) and then distribute the remaining monies available to the shareholders. The Liquidator may distribute certain assets in specie (that is in kind) if circumstances permit.

If cash and assets available for distribution are £25,001 or more then the distribution received by members will stand to be taxed at the CGT rates prevailing. It may be possible (provided that certain criteria are met) for shareholders to take the advantage of entrepreneurs’ relief. (ER) whereupon if an ER claim is possible capital gains tax payable will stand to be at 10%. In addition, there is an annual exemption to CGT that would apply to capital distributions if not claimed against other chargeable gains.

Members are required to be provided with reports on the progress of the liquidation with the first progress report required to be issued by the Liquidator after 12 months and annually thereafter until the Liquidator submits a final report to the members to conclude the liquidation. If the liquidation does not exceed 12 months then only a final report will be submitted to the members.