Can I liquidate my company with an MVL without repaying the director's loan? Can I liquidate my company with an MVL without repaying the director's loan?
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  1. #1

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    Question Can I liquidate my company with an MVL without repaying the director's loan?

    I am looking to close my company via an MVL but the DLA balance is £62,007. I understand many liquidators require that all debts be repaid before getting involved in case of unexpected liabilities. My company's retained profit is around £65,000, so it would be used to pay off the loan. Given that it would be easier for me to not repay the loan to the company, is there any way of doing this with an MVL? In other words, does anyone know of a reliable/reputable liquidator that would do this?

    PS: Not interested in Internet arguments or holier-than-thou opinions here. The above are the facts, just need simple answers please. If it can't be done, I'll repay the loan. Many thanks.
    Last edited by Neo; 8th November 2015 at 11:20.

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    Wouldn't it be much easier to just repay it as you'll be paying the LTD interest on that loan so your closing figure is going to be constantly changing??
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    Presumably all that is required is to declare a dividend and journal the required amount between Retained Earnings and the DLA, but this may not be the most tax-efficient method.

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    Quote Originally Posted by Neo View Post
    I am looking to close my company via an MVL but the DLA balance is £62,007. I understand many liquidators require that all debts be repaid before getting involved in case of unexpected liabilities. My company's retained profit is around £65,000, so it would be used to pay off the loan. Given that it would be easier for me to not repay the loan to the company, is there any way of doing this with an MVL? In other words, does anyone know of a reliable/reputable liquidator that would do this?

    PS: Not interested in Internet arguments or holier-than-thou opinions here. The above are the facts, just need simple answers please. If it can't be done, I'll repay the loan. Many thanks.
    What you are trying to do is, having taken £62k out of the company as a loan, close the company down without repaying the loan and take another £65k out of it under MVL as well.

    You don't seem to be aware of the issues around management of Directors Loans.

    You are effectively writing off the original loan, this would mean that it becomes deemed income to you so you become liable for tax on it. It then generates a tax liability on the company as well of 25% of the loan value reducing the amount of money left to distribute.

    So it will cost you £24k or so in personal tax assuming you are up to the upper rate threshold already. It will cost the company around £16K in corporation tax. Assuming you have spent the original £62k loan you will get £44k back out of the company under the MVL from which you will have to pay £24k in tax on the loan that has been written off.

    This would leave you with about £20k less MVL fees and any other costs.

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    Have a chat to Maslins who posts on here and is a part owner if MVLOnline. A number of people on here have used it an all seem to have positive reviews. Nixon Williams also offer an liquidation service.
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    MVL Online's default stance is we couldn't help. There are some circumstances where we can for a small extra fee.

    A few reasons, not all of which will apply in all cases:
    1) S.455 - yes you may argue that doing the capital distribution within 9 months of the period end that the loan was taken should negate any S.455 risk...but...you typically can't future date repayments, meaning you can't then complete the CT600 prior to liquidation starting, which is a further annoyance. Plus of course if the loan has been around a while you may already have suffered S.455 which may or may not be reclaimable.
    2) Your company cash balance is only ~£3k. Take out the liquidator's fee and there's only a very small buffer there in case HMRC/other creditors make a claim. If that were to happen then the liquidator would have to chase you for funds to repay any company debts. Not fun for anyone involved.
    3) Multiple shareholders? Sometimes there'll be two shareholders, let's say it's Mr & Mrs Bloggs. The director loan however would typically be allocated to one of those people...or even if spread between them, unlikely to be split in line with the shareholding. Hence clearing with a distribution isn't simple. Quite often liquidations are due to fall out between the shareholders, so it's not always amicable, and one shareholder won't be happy to use their distribution to clear the DLA that they argue purely relates to the other person.

    If you can't repay it, speak to a few liquidators, I'm sure some will be happy to help...but depending upon how many of the above things are issues, it might be higher risk, hence higher fee for the liquidator.

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    Thanks, Maslins. I intended to use your company before I posted, but I'm aware of the issues re repayment of a director's loan, hence the post. Contrary to DaveB's reply, my understanding was that doing it the way I suggest (not repaying the loan before the liquidator gets involved) would have no effect on the tax (corporation or personal) because it's just a timing arrangement rather than actually affecting the P&L of the company. The debt is not being written off in other words.

    I take on board your comments about unexpected liabilities. As I mentioned, it is easier for me to not repay the full loan back before liquidation, but I could repay part of it to increase the buffer to a level the liquidator would be more comfortable with.

    Re your other points, the accounting period end is 31 May, so S.455 won't apply, and I still have the option to extend the accounting period to 31 November if necessary. I'm the only shareholder.

    Your point about the CT600 and not being able to future-date repayments is indeed an annoyance. But, is there any way I can achieve what I'm trying to achieve based on the above, even with a part repayment?

    To add context, the aim, of course, is to benefit from Entrepreneurs' Relief, hence my comment re no effect on tax above.

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    Quote Originally Posted by Neo View Post
    I am looking to close my company via an MVL but the DLA balance is £62,007. I understand many liquidators require that all debts be repaid before getting involved in case of unexpected liabilities. My company's retained profit is around £65,000, so it would be used to pay off the loan. Given that it would be easier for me to not repay the loan to the company, is there any way of doing this with an MVL? In other words, does anyone know of a reliable/reputable liquidator that would do this?

    PS: Not interested in Internet arguments or holier-than-thou opinions here. The above are the facts, just need simple answers please. If it can't be done, I'll repay the loan. Many thanks.
    Only the low cost liquidators (who charge circa £1.5k + VAT) require the loan to be repaid

    Expensive liquidators (who charge circa £3.5K + vat) will not require the loan to be repaid

    The loan will be released for corporation tax purposes from the date of liquidation (your accountant will handle this) and there will be a distribution in specie of the accumulated profits (your liquidator will handle this)

    No s.455 tax on the loan and no income tax will be due on the distribution

    there shouldn't be any problems with entrepreneur's relief but check with your accountant/tax advisor

    I think you will be better served just calling up a firm of liquidators rather than asking for help on this forum.
    Last edited by JB3000; 8th November 2015 at 19:04.

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    Is the OP saying he owes 62,700 to the co which has 65,000 still left in cash, or that his loan is 62,700 out of 65,000 and that's it?

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    Quote Originally Posted by stek View Post
    Is the OP saying he owes 62,700 to the co which has 65,000 still left in cash, or that his loan is 62,700 out of 65,000 and that's it?
    £65,000 retained profit per my first post.

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