If you’re closing a solvent limited company through a Members’ Voluntary Liquidation (MVL), you might be wondering: “Can I distribute assets in an MVL instead of cash?” The answer is yes, under the right conditions. Known as an in-specie distribution, this approach involves transferring company assets directly to shareholders rather than liquidating them for cash.
In this guide, we’ll explain how in-specie distributions work, what assets you can include, the tax and legal considerations involved, and how to avoid common pitfalls. If you’re looking to retain property, settle Director’s Loans, or maximise tax efficiency, understanding your options is key to a successful MVL.
What is an MVL?
An MVL is a formal process used to wind up a solvent company, one that can repay its debts in full within 12 months. Commonly used by Company Directors who are retiring, restructuring, or no longer trading, an MVL enables shareholders to extract the company’s value in a tax-efficient way.
Once the company enters liquidation, a licensed insolvency practitioner like Clarke Bell is appointed to sell off assets and distribute the remaining funds to shareholders. While this is often done in cash, it’s also possible to distribute MVL assets in their existing form. This is known as an in-specie (or in-kind) distribution.
Related Reading: The Ultimate Guide to Members’ Voluntary Liquidation
What is an in-specie distribution?
An in-specie distribution allows shareholders to receive company assets directly instead of receiving their cash value after sale. Rather than liquidating company property, shares, or other valuables, Clarke Bell, in our role as the appointed liquidator, can transfer them as-is.
This option can be particularly useful when selling the asset would incur unnecessary costs, if shareholders want to retain the asset personally, or if there are tax advantages in doing so. It is also a way for directors to remain in control of their money, rather than transferring a company’s bank balance to a Clarke Bell client account before our appointment. Importantly, in-specie distributions must be made at market value and carefully documented to remain compliant with tax and insolvency law.
What types of assets can be distributed?
Not all assets are suitable for in-specie distribution, but many can be transferred, including:
- Real estate or land
- Company vehicles or equipment
- Shares or investment holdings
- Intellectual property, such as trademarks or patents
- Outstanding Directors’ Loans or intercompany balances
The liquidator will review the nature of the asset, its value, and the practicality of transferring it to shareholders in proportion to their holdings. Where there is a clear benefit and no barriers to transfer, the distribution may proceed in-specie.
Why consider in-specie distribution?
There are several reasons why Company Directors and shareholders might prefer in-specie distribution during liquidation.
Tax efficiency is often at the top of the list. In an MVL, distributions are typically treated as capital rather than income, which means qualifying shareholders can benefit from Business Asset Disposal Relief (formerly Entrepreneurs’ Relief). This reduces Capital Gains Tax to 14%, and can apply to in-specie distributions just as it would for cash.
Cost savings can also be significant. Selling assets like property may involve agents, legal fees, or market discounts. Transferring the asset directly avoids this and retains more value within the distribution.
Another common reason is utility. Shareholders may wish to retain business premises, a trademark, or specific equipment for future ventures. Taking ownership directly gives them flexibility and continuity rather than starting from scratch or repurchasing the asset later. It also allows directors to maintain control over company funds, instead of transferring the business’s bank balance to Clarke Bell before we’re formally appointed.
Related Reading: What Happens to Shareholders When a Company Is Liquidated?
Are there any drawbacks?
Despite the benefits, in-specie distribution must be approached carefully. The asset must be valued accurately at the market rate. This often requires a professional valuation, especially for non-tangible assets like intellectual property or loans, which adds cost and complexity.
Legal and tax implications may also arise. For example, transferring loans may trigger stamp duty, while share transfers may require regulatory approval. In some cases, VAT could apply, depending on the nature of the asset.
Another issue is shareholder fairness. If shareholders own unequal portions of the business, transferring indivisible assets, such as property or equipment, can become complicated. The liquidator must ensure the distribution is proportionate and fair to avoid conflict or legal challenge.
What is HMRC’s view?
HMRC accepts in-specie distribution as a valid method of transferring assets in liquidation, provided it is correctly managed. The key requirement is that the distribution is made at market value and is not structured to avoid tax.
If the company is genuinely solvent, and the asset transfer is part of the liquidation process with proper shareholder approval and valuation, it should qualify for capital treatment. This means that Business Asset Disposal Relief may be applicable, subject to the usual eligibility criteria.
However, HMRC does scrutinise arrangements where assets are undervalued, transferred to connected parties, or used as a mechanism to avoid tax. It is essential that all transactions are transparent, fully documented, and carried out with professional advice.
The MVL process with in-specie distribution
If you’re considering in-specie distribution, here’s how the process typically works:
- Initial Planning: Directors meet with Clarke Bell to review the company’s assets and determine whether an in-specie distribution is appropriate.
- Asset Valuation: All non-cash assets intended for in-specie transfer must be valued at market rate, often through an independent valuation.
- Declaration of Solvency: Directors sign a formal declaration that the company can repay its debts in full within 12 months.
- Shareholder Approval: Shareholders must approve both the MVL and the method of distribution, typically through a special resolution.
- Liquidator Appointment: The insolvency practitioner is officially appointed to manage the liquidation process.
- Asset Distribution: The liquidator transfers cash and/or assets in line with the shareholders’ entitlements.
- Final Clearance and Dissolution: Once all obligations are met, HMRC clearance is obtained and the company is dissolved.
Can Directors’ Loans be repaid in-specie?
Yes, in some cases, if the company owes money to a Director, the repayment can be made in cash or through the transfer of an asset, such as a vehicle or piece of equipment, of equivalent value. This must be agreed upon as part of the liquidation strategy and carried out transparently, ensuring no conflict of interest arises.
Such distributions must be fair and at arm’s length. As liquidator, Clarke Bell will oversee the transaction to ensure it complies with legal and tax requirements and does not disadvantage other creditors or shareholders.
Related Reading: How to Handle Director’s Loans in a Liquidation
Is it possible to mix cash and in-specie distributions?
Absolutely. In many MVLs, a blended approach is used to accommodate shareholder preferences and preserve asset value. For example, available cash may be distributed first, while certain high-value assets like property or intellectual property are passed on directly.
This mixed approach allows the liquidation to be both tax-effective and flexible. As with any in-specie distribution, valuation and documentation remain key, and shareholder consensus must be obtained.
Key considerations before choosing in-specie distribution
If you’re weighing up in-specie distribution, there are a few questions to consider:
- Are the company’s assets suitable for transfer in their current form?
- Will a direct transfer save money or offer better long-term value?
- Are shareholders in agreement with this approach?
- Have all legal and tax consequences been explored?
- Will the distribution be fair and proportional?
Speaking to Clarke Bell early in the process helps answer these questions and ensures your MVL proceeds smoothly.
Common mistakes to avoid
The most common issue with in-specie distribution is undervaluing the asset. This can lead to tax penalties or disputes. It’s vital that an accurate and professional valuation is obtained, especially if the asset is unusual, non-tangible, or of significant value.
Another pitfall is failing to properly record or approve the distribution. All in-specie transfers should be supported by formal shareholder consent, and the liquidator must manage the process to avoid any risk of challenge from HMRC or other parties.
Finally, avoid assuming in-specie distribution is always cheaper or simpler. Legal transfer costs, stamp duty, or ongoing obligations (such as insurance or maintenance) may apply, which should be factored in at the outset.
How Clarke Bell can help
If you’re considering closing your company with an MVL and want to understand your distribution options, Clarke Bell is here to guide you. We’ve helped thousands of Company Directors wind up their companies efficiently and in full compliance with tax and insolvency rules.
Whether you’re distributing cash, property, or other MVL assets, we’ll assess your situation, help you plan your liquidation strategy, and ensure everything is handled professionally, from asset valuation to final clearance with HMRC.
Speak to Clarke Bell today to explore how in-specie distribution could work for your MVL.
