Move the funds directly to my personal account during MVL

[jesanarr]

Hi!

I'm about to close my Ltd company. I have traded with it during almost 6 years so I have an amount of money bigger than 25k so I have to go through a MVL process and claim ER so I can optimize the amount of tax to be paid.

My accountant has provided me an online Liquidator that does it for £1500, what I think it's quite a good price.

So far so good, but I'm writing here because there is one thing in the way they are suggesting to do the liquidation that I like but makes me a bit nervous as it's something other liquidators don't do as far as I know. These guys let me pay directly the funds from my Business account to my personal account once we have signed and the MVL has started. I will have 10 days to move the money before the account is freeze by the bank.

Is it a normal procedure? Is it not mandatory for the funds to go first to the Liquidator account and then to be distributed to the shareholders? (In this case it's just myself).

Not that I don't like the idea, I totally prefer to be in control of the funds all the time instead of sending the hard-earned savings of 6 years to somebody else's account, but it just sounds be a bit weird and would like to make sure it's a normal procedure and avoid HMRC to be picking on me because of this.

Many thanks in advance.

[FrontEnder]

I've no experience in this at all, but I don't see any reason why it should go into the liquidator's account at all.

[jesanarr]

Thanks FrontEnder,

Does somebody else have an experience on this kind of practice?

Thanks.

[LondonManc]

No but I' with FrontEnder on this. I'd want it straight into my account and then pay them any fees from there later. Better setting it aside in your account if needed than it going missing.

[Maslins]

I'd suggest it's certainly not "normal procedure", but I can see why it would potentially appeal to clients. It comes down to best practice and risk.

After the company goes into liquidation, the liquidator is responsible for the assets of the company, not the director. If the company funds have gone straight to the liquidator without the liquidator even having advertised for creditor claims (yet), then that is a massive risk to the liquidator. Even if the liquidator has an indemnity (which they almost certainly would do), they'll be completely exposed if the director/shareholder wants to avoid creditors. I realise as the client this may well not concern you.

There's potentially also a little risk to the shareholders. In the (admittedly unlikely) event that HMRC wanted to investigate, they might consider the whole "capital distribution" to be a sham, if it hasn't been routed via the liquidator.

From MVLO's perspective, it's simply not the right way to deal with things, and would put an unreasonable risk on us, so not a route we're prepared to look at. We do understand client's concerns about handing over years of hard earned money to some random firm off t'internet...but for any firm to be a licensed insolvency practitioner, they have to have lots of safeguards in place, so realistically you shouldn't be concerned whether it's ourselves or any other liquidator.

[LondonManc]

I'd suggest it's certainly not "normal procedure", but I can see why it would potentially appeal to clients. It comes down to best practice and risk.

After the company goes into liquidation, the liquidator is responsible for the assets of the company, not the director. If the company funds have gone straight to the liquidator without the liquidator even having advertised for creditor claims (yet), then that is a massive risk to the liquidator. Even if the liquidator has an indemnity (which they almost certainly would do), they'll be completely exposed if the director/shareholder wants to avoid creditors. I realise as the client this may well not concern you.

There's potentially also a little risk to the shareholders. In the (admittedly unlikely) event that HMRC wanted to investigate, they might consider the whole "capital distribution" to be a sham, if it hasn't been routed via the liquidator.

From MVLO's perspective, it's simply not the right way to deal with things, and would put an unreasonable risk on us, so not a route we're prepared to look at. We do understand client's concerns about handing over years of hard earned money to some random firm off t'internet...but for any firm to be a licensed insolvency practitioner, they have to have lots of safeguards in place, so realistically you shouldn't be concerned whether it's ourselves or any other liquidator.

Thanks for clearing that up.

Would you suggest that OP finds a different liquidator?

[Maslins]

Thanks for clearing that up.

Would you suggest that OP finds a different liquidator?

Awkward question for me to answer!

I think reality is most of the risk of their proposed action is with the liquidator themselves rather than the client. I imagine most cases will go smoothly and the liquidator won't have a problem, but when some kind of creditor thing crops up (and it will at some point), they could be in trouble.

They'd need to pursue the client to get funds back to settle any creditor claims. Even if the client does that without quibble, there'd still be a lot of paperwork to re-do (as presumably distribution notices would have been prepared based on the initial net asset valuation, which would then be reduced due to appearance of unexpected creditor).

Chances are it'd probably all work fine without issue, it's just when something quirky does crop up, it'll be a lot more faff to deal with.

[ASB]

Awkward question for me to answer!

I think reality is most of the risk of their proposed action is with the liquidator themselves rather than the client. I imagine most cases will go smoothly and the liquidator won't have a problem, but when some kind of creditor thing crops up (and it will at some point), they could be in trouble.

They'd need to pursue the client to get funds back to settle any creditor claims. Even if the client does that without quibble, there'd still be a lot of paperwork to re-do (as presumably distribution notices would have been prepared based on the initial net asset valuation, which would then be reduced due to appearance of unexpected creditor).

Chances are it'd probably all work fine without issue, it's just when something quirky does crop up, it'll be a lot more faff to deal with.

Would it not be possible to use some sort of client account requiring both signatories in order to protect both sides interests ? I suppose that may causes other problems with settling any debts if the client is reluctant though.

[Maslins]

Would it not be possible to use some sort of client account requiring both signatories in order to protect both sides interests ? I suppose that may causes other problems with settling any debts if the client is reluctant though.

Lots of things are potentially possible...it's just a question of hassle (which in turn leads to costs). To do the above I guess the shareholder(s) of each company would need to be involved in the setting up of the estate account. Multiple signatories isn't that easy to do with online banking payments, so guessing it'd need to be cheques. This would add more delays (as well as hassle/cost), and I'm sure some clients would forget to sign the cheque before banking it in their personal account etc.

Re client being reluctant over settling debts...to be honest that's awkward even where the liquidator has 100% control over the funds. If the shareholder disputes a claim, liquidator needs to try to assess whether it really is a valid claim or not (often easier said than done when one party says yes the other says no).

With more traditional liquidations, clients are rarely concerned, as whilst the liquidator might be legally taking control of a bank with a few grand in it, they're also taking control and responsibility of lots of debts. It's only really the "new breed" of liquidations done largely for tax reasons, where companies have lots of cash and no/negligible liabilities that clients get understandably concerned. They shouldn't really need to be though. For a firm to have the power to put a company into liquidation, they have to have lots of safeguards in place.

[jesanarr]

Thanks guys, that's really valuable information!

Maybe I have to explain my personal situation a bit better.

In my case I worked during all this time for the same firm and I have no creditors at all. I'm the only Director and shareholder of the company. The accounts will be cleared by the accountant before going to liquidation (VAT, CT, my dividends, my salary, that's all), so it's a pretty straight forward liquidation. I guess that's why the Liquidator takes this "risk" and let me move all the funds directly to my account instead of sending it to theirs and then go through the whole process. Which I prefer as I don't have to wait for the money for longer and also it's all the time under my control. Does this makes any difference?

I understand for your comment's that really, this kind of practice would be riskier for the Liquidator itself than for the client. But you say in case HMRC look at the case I could be in trouble right? What could be the worst that could happen? Not been able to claim the ER relief or having to pay for all the funds as dividends?

Kind regards.