A Members Voluntary Liquidation (MVL) procedure is used when the Company is solvent. A company is solvent if by definition it has sufficient assets enough to settle all liabilities in full plus any statutory interest to be paid within a given period of less than 12 months.
Although the process relates to solvent companies, it must be managed by a licensed insolvency practitioner.
The directors’ decision to instigate an MVL is generally because the company has no further purpose and is a tax efficient way of distributing its assets and profits to the shareholders. Companies with more than £25,000 of cash to release may qualify for Entrepreneurs’ Relief if specific criteria are met. The assets are sold, and the proceeds are used to pay creditors in full as well as the liquidator’s fees. Any remaining monies are then distributed to the shareholders.
If your company is solvent, an MVL can also be used to distribute cash, liquid or physical assets between the shareholders via the MVL procedure, whereby the directors’ obligations are removed. To qualify for Entrepreneurs’ Relief a company must first be able to settle all of its liabilities, after which the usual limit on distributions can be treated as a capital receipt rather than a dividend. The ESC C16 Legislation currently stands at £25,000.
Bhardwaj Limited does not give tax advice since individuals and companies can have very different tax circumstances. It is recommended that you take advice from your accountant or tax specialist about closing your company using the MVL process or qualifying for Entrepreneurs’ Relief, before making any decisions.