What is a Members' Voluntary Liquidation?

A Members’ Voluntary Liquidation (MVL) is the procedure taken to wind up solvent companies.

This is only available for companies that can pay all of their liabilities in full, as well as the cost of winding up a company, within 12 months of the declaration of solvency.

Why do contractors use MVLs?

In the past ESC C16 was used by most contractors to close their solvent companies; however since March 2012, ESC C16 was written into tax law and states that distributions over £25,000 will be treated as income rather than capital receipts.

The main advantage of a MVL is that all distributions made in the liquidation, including those over £25,000, count as capital receipts, which means they are subject to capital gains tax rather than income tax. Capital gains treatment will lead to far lower tax liabilities than the equivalent dividends, especially if Entrepreneurs’ Relief applies.

For distributions below £25,000, capital treatment automatically applies, and therefore a MVL would not be necessary. In this case you would simply pay the £10 fee to Companies House to strike off your company from the register.

What does the MVL process involve?

Once the directors have made the decision to wind up the company using a MVL, they must appoint a licensed Insolvency Practitioner (IP) who will act as a liquidator and assist in placing the company into MVL. The process will usually follow the below steps:

• The directors are required to draw up a declaration of solvency, stating that they have made full inquiry into the company’s affairs and they believe that the company will be able to pay its debts in full within 12 months of entering liquidation
• A special resolution for winding up the company voluntarily must then be passed by the company members; this should be no longer than 5 weeks after the date of swearing the declaration of solvency. The resolution must then be advertised in The Gazette within 14 days and filed with Companies House within 15 days
• The appointed liquidator will deal with the filing of documents and publication of required notices, such as  notifying all creditors within 28 days, publishing the appointment in The Gazette within 14 days and notifying Companies House within 14 days
• The company funds will then be transferred into a liquidation holding account and the liquidator will firstly ensure any creditors are paid before distributing the remaining funds to the shareholders
• As soon as the liquidation is complete, the liquidator is required to call a final meeting which must be advertised in The Gazette at least one month before it takes place. This is a formality for the purpose of the shareholders approving the account of the liquidation. Within a week of the final meeting, the liquidator must file final documents with Companies House, and the company will then be automatically dissolved within three months.

How much does an MVL cost?

The cost of a MVL will vary depending on the type of service you require, and can range from around £1,000 to £4,000. MVLs that cost less usually require the company directors to have done all the preliminary work such as paying all liabilities, submitting final returns, preparing final accounts, and deregistering for VAT and as an employer – before beginning the process with them. MVLs on the dearer side however will handle these elements for you.

How long does an MVL take?

How long the MVL takes will depend on the circumstances of the individual case, but it usually takes between six months and a year. Again it will also depend which kind of service you use and how much of the preliminary work you complete yourself before you begin the process with a liquidator.

Editor’s Note: Related Reading –

Contractors’ guide to insolvency, Part One

Contractors’ guide to insolvency, Part Two