The process of an MVL
As a formal liquidation procedure, an MVL can only be entered into under the guidance of a licensed insolvency practitioner who will assume the role of liquidator during the process. It will be their responsibility to ensure any outstanding creditors are identified and settled accordingly, extracting the remaining assets in a tax-efficient manner and distributing these to shareholders, before notifying Companies House that the company is to be removed from the register. Once the company is removed from the Companies House register, it will cease to exist as a legal entity.
Declaration of Solvency
MVLs are only suitable for solvent companies who are able to pay any outstanding liabilities (plus statutory interest) within 12 months. For a company which is unable to pay its debts, an insolvent liquidation process such as a Creditors’ Voluntary Liquidation will need to be explored as an alternative.
Shareholders must sign a declaration of solvency attesting to the fact that the company is able to pay any outstanding liabilities in full within 12 months of entering liquidation. Falsely swearing a declaration of solvency can be seen as an act of perjury, so a full and frank investigation into the company’s affairs must be conducted before the liquidation process begins.
Don’t Fall Foul of Unqualified AdviceFeatures of an MVL
- Business Asset Disposal Relief
MVLs are typically recommended for companies with in excess of £25,000 worth of cash and/or assets to distribute. This is because extracting profits via an MVL at this level is much more tax-efficient than taking the money as income. Profits extracted by way of an MVL are classed as Capital Gains, rather than income, and therefore taxed accordingly.
Furthermore, shareholders can also take advantage of Business Asset Disposal Relief (BADR), which cuts the CGT rate in half down to just 10%. There is no limit to how many times BADR can be used, although individuals are capped up to a lifetime limit of £1m worth of gains.
The rate of Business Asset Disposal Relief will increase to 14% in April 2025, and again to 18% in 2026.
- Distribution in Specie
During an MVL, a resolution can be passed to allow for certain assets to be transferred in their current form, rather than its equivalent value in cash; this is known as a distribution in specie. Both physical (property, vehicles) and non-physical assets (stocks, bonds) can be distributed in specie if this is deemed more preferable or practical than liquidating the assets prior to distribution.
MVL vs Strike Off
While strike off is a viable option open to those looking to close their solvent company, it may be the case that opting for an MVL is the most prudent choice. Not only does an MVL ensure the company is brought to an end in an orderly manner in full accordance with the Insolvency Act 1986, the tax advantages could even make this a more cost-effective route to company closure.
There is no escaping the fact that an MVL has a higher price tag than simply striking off the company at Companies House, however, when it comes to the preferable tax treatment given to the money taken by way of a formal liquidation process, this could tip the balance in the favour of an MVL.
If you are considering closing your solvent company, therefore, it is highly recommended you seek the advice of a licensed insolvency practitioner who will be able to explain your options and advise on the best route forward.
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