Members’ Voluntary Liquidation

MVL is a procedure commonly used by directors who wish to retire or move on from their current venture and where there’s nobody else to take on the business. We can advise whether an MVL is right for you based on your aims and intentions and the financial position of the business, providing support and guidance throughout.

What is Members’ Voluntary Liquidation?

Members’ Voluntary Liquidation is a formal insolvency procedure that requires the appointment of a licensed insolvency practitioner (IP). The business is closed down in an orderly manner and proceeds extracted in a cost-effective manner.

Funds extracted through an MVL are classed as capital gains rather than income, meaning they are subject to Capital Gains Tax (CGT) rather than Income Tax; this can represent a serious saving. Furthermore, you may be able to take advantage of Entrepreneurs’ Relief which will cut the rate of CGT down to just 10%.

How does Members’ Voluntary Liquidation work?

• Directors sign a Declaration of Solvency to confirm the company can repay its debts within 12 months – this includes contingent liabilities, which are debts that may arise in the future
• A licensed insolvency practitioner is appointed to act as liquidator
• A members’ meeting is arranged and if 75% (by value of share) vote in favour, the liquidation process begins

Once shareholders have approved the MVL, the statutory process begins. This includes informing HMRC and Companies House, placing an advertisement in the Gazette, selling company assets, settling claims from creditors, and distributing surplus funds to shareholders.

What are the advantages of an MVL?

• It’s tax efficient as distributions are taxed as capital gains rather than income
• You may be able to claim Entrepreneurs’ Relief, which reduces the effective rate of tax even further to 10%
• A licensed professional carries out the procedure, so you know you’re meeting your statutory duties as a director

Are there any disadvantages?

• Due to the professional fees involved Members’ Voluntary Liquidation can be an expensive process and may only be appropriate if you have a certain level of retained profits. The cost depends on the size of the company, number of assets, and complexity of transactions. As a guideline figure, companies with assets of £25,000 or more would typically benefit from an MVL
• As the company is being liquidated and closed down, all members of staff will lose their jobs

MVL considerations and issues we can help you with

Ensuring your business is solvent is a key consideration prior to placing your company into an MVL. If your company is actually insolvent a different procedure needs to be entered into; this is called a Creditors’ Voluntary Liquidation (CVL).

Making the initial decision to liquidate and close the company can be difficult, especially if you’ve run the business for some time. You may wonder whether it’s the right step to take, or if there are other options available, such as keeping it open but in a dormant state.

We can advise on all matters relating to Members’ Voluntary Liquidation, and have extensive technical knowledge and practical experience. You can get in touch with one of our partner-led team for more information and guidance – we offer free same-day consultations and operate a network of offices around Scotland.