Just a quick note to say a big thank you to all the staff at KSA, our CVA was passed today by creditors voting in an overwhelming number including HMRC to accept the proposal as prepared by KSA.
The road to reach today’s conclusion has been bumpy, but at each stage your team has supported and guided us through the issues and we have reached a very satisfactory outcome to the benefit of customers, staff, all creditors and shareholders.
Members Voluntary Liquidation MVL
What is a Members Voluntary Liquidation or MVL?
MVL is a means of bringing a company to a formal end and distributing its surplus funds or assets, such as property, to the shareholders. This is undertaken either through payment of a cash dividend (caution this is treated as a capital receipt in the hands of the individual shareholder) or a distribution "in specie" i.e. where assets are passed to the shareholders rather than cash. MVLs are ONLY available when the directors can declare that the company is solvent and can meet all of its obligations, taxes and creditors IN FULL.
When is the procedure appropriate?
The procedure, sometimes called a "solvent liquidation", is appropriate when a solvent company has come to the end of its useful life and needs to be wound up. For example:
- When a company is an old established family business where the owners/parents have retired and children or family do not want to run the business.
- Shareholders wish to retire and have cash, property, assets etc within the company which they want to transfer into their personal estate.
- Where a rationalisation of a group of companies is required; This may involve more than one MVL or a transfer to trading companies within the group.
- The new provisions of entrepreneur's relief mean it is also more tax efficient to take money out of the company via an MVL rather than taking it all out as a special dividend. It is always worth checking this with your accountant first.
- Remember, it is NOT appropriate if the company is insolvent. If this is the case and you swear the declaration of solvency, you could be committing a criminal offence. If your business is insolvent, you should consider a company voluntary arrangement or creditors voluntary liquidation.
What are the benefits of a Members Voluntary Liquidation (MVL)?
If you have a company that has cash, assets, few liabilities but no future purpose (so is otherwise solvent), then an MVL could be the best solution to your problem. As mentioned above, an MVL will allow you to take advantage of Entrepreneur's Relief. Since March 2012, the ESC C16 (Extra Statutory Concession C16) is no longer a requirement when closing a company. So, if you have in excess of £25k in an obsolete company to be taxed on shareholders via capital gains tax (CGT) instead of dividends, you need to put the company into members voluntary liquidation rather than dissolution.
If the company has cash or properties that can be turned into cash then a solvent liquidation can be used to distribute the liquid assets to shareholders or distributed "in specie" (NB subject to personal taxation depending upon an individuals circumstances). The company can then be dissolved and directors' obligations removed.
Be aware the government introduced new rules in April 2016.
Distributions to individuals from the solvent liquidation of a company may be subject to income tax under the following circumstances
- The company is a closed company.
- Within two years after receiving a distribution the person is involved with a similar trade or activity.
- The winding up of the company appears to be to reduce tax.
What does 'solvent' mean exactly?
It means the company can pay all its liabilities in full, plus statutory interest AND the liquidation costs involved in winding up the company, within 12 months of the declaration of solvency. This statutory declaration is required as part of the MVL process and the directors have to swear an affidavit that the company is solvent.
How do we arrange an MVL?
Call us and we will arrange for our licensed insolvency practitioners to talk you through the process and help prepare the paperwork. You will need to fill out a statutory declaration of solvency which is sworn in front of a solicitor. Our team will arrange all creditors meetings, correspondence and legal notices.
In order to get an MVL underway, you will need to have completed the following;
- File the latest set of accounts up to the date the business has ceased trading
- Sell any remaining assets of the business
- De-register for VAT
- De-register as an employer
- Collect in any monies owed to the business
- Ensure all liabilities paid.
What is the process?
- Statutory declaration of solvency
The first step is the statutory declaration of solvency that has to be sworn in front of a solicitor or notary.
Notice of meeting of members
At the meeting of members, which must be held within five weeks of the statutory declaration, a Special Resolution is passed by members agreeing to the company being placed into liquidation and for the appointment of a liquidator.
Meeting of members
The meeting is subject to the normal provisions for general meetings, and the chairman needs to be aware of any provisions that may affect the conduct of the meeting.
Appointment of the liquidator
The liquidator must give a written statement to the chairman of the Extraordinary General Meeting (EGM) that he is suitably qualified under the Insolvency Act 1986 and that he or she consents to act. The chairman will certify the appointment on the appropriate form.
Within 14 days of his appointment, the liquidator must publish in The London Gazette (or the Edinburgh Gazette in Scotland) and deliver a statutory notice of his liquidator’s appointment for registration.
- Distribution and period of Liquidation
Once appointed the liquidator carries out his duties according the Act and the Rules. His role is to ensure that the liquidation is properly completed; all assets are distributed pro-rata according to shareholding. When the company is in liquidation the liquidator has duties as he would in any other type of liquidation. He must gather in the assets and distribute them in accordance with the statutory order.
How much does it cost?
In relatively simple situations, the total cost can start from £3500 + disbursements. However, it can be a complex process and will depend on the individual case. Give us a call and we can give you a no obligation estimate of the costs.
Call us now on 0800 9700539 for more information and advice. We can arrange for the appropriate insolvency practitioner to call you free of charge to discuss your options.