How do I liquidate my own limited company?
Director-led liquidations can take two main forms – Members’ Voluntary Liquidation and Creditors’ Voluntary Liquidation.
But MVL and CVL are quite different in their respective causes and effects, so directors should take care that they understand all the implications of each course of action, writes Matt Fox, partner at Beacon Lip Limited.
The services of a licensed and qualified insolvency practitioner – or ‘IP’ for short -- are mandatory in both cases.
Members’ Voluntary Liquidation
Members’ Voluntary Liquidation is usually appropriate for a solvent company, where the directors want to utilise the most tax-efficient way of extracting the company’s assets and cash.
But not all businesses qualify for a Members’ Voluntary Liquidation.
To qualify for an MVL, your company should have been trading for at least a year, and you must not trade via a limited company for at least two years post-liquidation.
In addition, your company’s assets must total more than £25,000, and you should be an employee of the business, holding at least 5% of the shares.
Tax advantages of MVL
An MVL, if you do qualify for it, can have significant tax benefits.
Instead of taking any remaining profit as a dividend (and paying capital gains tax of 28% or 18%), you can use your personal (tax-free) allowance of £12,300 and, further, you may be able to leverage Business Asset Disposal Relief. Using BADR, you could pay CGT at only 10%.
Be aware though, HMRC does take the two-year rule about not starting up another company very seriously. The government brought in the Targeted Anti-Avoidance Rule (TAAR) in 2016 to stop contractors and other limited company directors from engaging in this so-called “phoenixing,” i.e. closing one business down, distributing the profits, and then launching another one back up, immediately afterwards.
Creditors’ Voluntary Liquidation
Creditors’ Voluntary Liquidation can come into play when your company is insolvent. In other words, CVL is for you where your company’s debts are greater than its assets.
As a shareholder and director of the business, you can use the mechanism of CVL to wind up the company.
Creditors’ Voluntary Liquidation assumes that the business cannot continue as a going concern and is no longer viable.
CVL: Agreement, redundancy, collection
With a CVL, the shareholders must firstly agree to the course of action. Then the directors will meet with an IP, whom you should check is licensed and qualified.
Any employees of your company will unfortunately of course be made redundant. An independent agent is usually appointed to market and sell any assets.
And the IP, as liquidator, will collect any debts owed to the business.
Keep in mind; all powers of the limited company’s director(s) cease at the point of liquidation.
Further be aware, any creditors’ claims will be reported to, assessed by, and agreed to by the liquidator. Finally, the company will be dissolved at Companies House.
A licensed insolvency practitioner? Don’t settle for anybody less when liquidating
As mentioned at the outset, you will require the services and advice of a licensed IP if you go down either the MVL or CVL routes.
This is because only an IP can act as liquidator. The benefit is that, if you choose a good, qualified and licensed IP, they will be able discuss the details of your company’s financial position and advise on all of the options available to you. There is usually more than one relevant option, and choosing the right one, with the practitioner’s guidance, can make a huge difference to the amount of tax that you will have to pay.