Originally published: 31 July 2019 | Last updated: 30 October 2024
If your company is solvent and you’re seeking a tax-efficient way to close it down, a Members’ Voluntary Liquidation (MVL) might be the ideal solution. It allows Directors to wind up the business and distribute remaining assets to Shareholders, all within legal guidelines.
One of the main concerns for Directors considering an MVL is whether their funds will be safe during the process. In this guide, we’ll explain how the MVL process works and what happens to your funds every step of the way.
What is a Members’ Voluntary Liquidation?
A Members’ Voluntary Liquidation is a formal procedure designed for solvent companies. It allows Directors to close the company and distribute assets to Shareholders after all liabilities have been settled.
The company must be able to pay its debts in full before entering an MVL. This makes it different from other liquidation procedures used for insolvent companies, where the effects of insolvency play an important role in how the process unfolds.
To close your company with an MVL, you will need to appoint a licensed Insolvency Practitioner (IP) to be the liquidator. They will then deal with the documentation that needs to be filed, liquidating any assets and distributing the company’s funds to the relevant shareholders.
Once the liquidation is complete, the company is dissolved, and its legal existence comes to an end. This provides a clean, efficient conclusion to the company. It helps you avoid ongoing administrative responsibilities like filing annual accounts and tax returns.
Related: What Are the Rules For Members’ Voluntary Liquidation?
Who should consider an MVL?
An MVL is most suitable for solvent companies with assets of over about £25,000. The main situations where an MVL is beneficial to company owners are:
- Retirement of Directors: If Directors are retiring and there’s no one to take over the business, an MVL provides a tax-efficient way to close the company. It allows retained profits to be distributed to Shareholders, often the retiring Directors, in a cost-effective manner.
- Restructuring of a group of companies: In cases where a company within a larger group is no longer needed, an MVL can be used to wind down that entity without disrupting the rest of the group. This allows the remaining companies to continue operating smoothly.
- End of trading: When a profitable company has fulfilled its purpose, an MVL offers a practical way to close the business.
For many Directors, the tax benefits make an MVL the preferred way to close a company. By categorising profits as Capital Gains and using Business Asset Disposal Relief, Shareholders can significantly reduce their tax liabilities. Funds from asset sales or account balances are taxed at a more favourable rate, leading to substantial savings.
Related: How Does Business Asset Disposal Relief Work In a Liquidation?
What happens to your money during the MVL process?
A common concern for directors is how their company’s funds will be managed during the MVL process. By appointing a regulated Insolvency Practitioner like Clarke Bell, you can trust that your company’s money will be handled securely and professionally. What happens to your company’s money depends on how you choose to handle the assets.
Immediate control (ODLA)
If the company’s only asset is an Overdrawn Directors Loan Account (ODLA), the funds remain under the Directors’ control throughout the process.
Within 35 days (pre-transferred cash)
When the company’s main asset is Cash at Bank, Directors can transfer these funds to a named client account before liquidation starts. This allows Shareholders to receive their distribution more quickly. Full payment is usually made within 35 days of the liquidation date.
After 35 days (post-appointment cash transfer)
If cash is transferred after liquidation begins, the Insolvency Practitioner works with the bank to close accounts and move the funds. Shareholders typically receive their money after 35 days, though this depends on the bank’s processing time.
Is your money safe in an MVL?
Yes, your money is safe during the MVL process, provided you appoint an experienced and regulated Insolvency Practitioner like Clarke Bell. Regulated by the ICAEW since 1994, we have two Licensed Insolvency Practitioners supported by a team of case administrators. As one of the country’s top MVL providers, we have successfully guided over 3,600 companies through the process, distributing over £559 million to shareholders.
We are required to obtain a Statutory Bond for the proper performance of our duties, with the ICAEW acting on behalf of creditors in the unlikely event of a defrauded estate. With our secure fund management, extensive experience, and transparent processes, you can be confident that your company’s closure will be handled securely and efficiently.
How long does the MVL process take?
On average, the Members’ Voluntary Liquidation process takes around three months. The exact timeline can vary based on the complexity of the company’s financial affairs. Here’s a typical breakdown:
- Initial stage (0-1 month): The process starts with the appointment of an Insolvency Practitioner and Shareholders passing resolutions to begin the liquidation. You are legally required to appoint a licensed Insolvency Practitioner to act as the liquidator during the process. The IP takes over the company’s assets, closes bank accounts, and informs creditors by placing statutory adverts in The Gazette. During this time, any claims from creditors are reviewed.
- Settling liabilities (1-2 months): The IP works to settle all outstanding debts, including any creditor claims that arise and tax obligations. If there are no disputes or complex assets, this phase moves smoothly.
- Final stage and distribution (2-3 months): Once all liabilities are settled, the remaining assets are distributed to Shareholders. The IP files the necessary paperwork with Companies House and HMRC to officially close and dissolve the company.
While most MVLs are completed within this timeframe, more complex cases may take longer. At Clarke Bell, we strive to complete the process as efficiently as possible, offering regular updates to Directors and Shareholders.
Related: How Long Does an MVL Take?
When will Shareholders receive their money in an MVL?
The timing of Shareholder payments during an MVL depends on how the company’s assets are managed and the specific circumstances of the liquidation. Immediate payment is possible if the sole asset is an Overdrawn Directors Loan Account (ODLA) under directors’ control. If cash assets are transferred to a client account before liquidation begins, shareholders typically receive payment within 35 days of the liquidation date. If the cash is transferred after liquidation starts, shareholders usually receive their money after 35 days, depending on bank processing times.
What is the role of the Insolvency Practitioner in an MVL?
In a Members’ Voluntary Liquidation, the Insolvency Practitioner is responsible for managing the company’s closure. They ensure the process is handled legally and efficiently. Their duties include:
Advising on the process
Before the MVL begins, the IP works with the Directors to determine if an MVL is the right solution. This involves confirming that the company is solvent and can pay any debts it may have.
Managing the liquidation
Once the MVL starts, the IP takes control of the company’s assets, closes bank accounts, and prepares to distribute funds.
Filing reports and returns
Throughout the process, the IP handles the necessary paperwork. They submit documents to Companies House and HMRC to ensure compliance with insolvency laws of England and Wales.
Finalising the closure
After all assets are distributed and liabilities are cleared, the IP files the final documents to officially dissolve the company.
What happens if insolvency issues arise during the MVL?
Although an MVL is meant for solvent companies, unforeseen liabilities can sometimes emerge during the process, potentially making the company insolvent. If this happens, the MVL must be converted into a Creditors’ Voluntary Liquidation (CVL) to ensure creditors are treated fairly under insolvency law.
In such cases, the Insolvency Practitioner will reassess the company’s financial position and take steps to protect creditors. This might involve selling off assets more quickly or adjusting the distribution to prioritise creditor payments over Shareholders.
While it’s rare for an MVL to convert to a CVL, Clarke Bell has the expertise to manage both processes. We’ll ensure that any insolvency issues are handled swiftly and fairly.
Related: Difference Between a Creditors’ & Members’ Voluntary Liquidation
What are the risks of an improperly handled MVL?
A Members’ Voluntary Liquidation is usually a simple and efficient way to close a solvent company. However, things can go wrong if it’s not handled correctly. Mistakes can cause delays, financial problems, or even legal issues. Here are some common risks:
Inaccurate solvency assessment
Failing to assess the company’s solvency correctly before starting the MVL can lead to complications later in the process. This typically results in the need to switch to a Creditors’ Voluntary Liquidation if the company is unable to pay its debts.
Mismanagement of funds
If the Insolvency Practitioner does not properly manage funds, it could delay the distribution of assets to Shareholders or result in legal action. Choosing an experienced and regulated IP mitigates this risk.
Failure to settle all liabilities
The IP must settle all creditor claims before distributing assets to Shareholders. If this step is overlooked, it could lead to disputes and legal challenges.
The best way to avoid these risks is to choose a reputable Insolvency Practitioner like Clarke Bell. We have the expertise to manage the MVL professionally and securely.
Why choose Clarke Bell for your MVL?
Choosing an experienced and trustworthy Insolvency Practitioner is essential for a smooth MVL process. Clarke Bell offers the expertise and professionalism required to manage the process efficiently. With our strong track record, you can have confidence that your company will be closed securely and in full compliance with all legal requirements.
Fixed fee services: Our £995 MVL service offers a cost-effective solution without compromising quality.
Expertise and regulation: With over 30 years of experience and regulation by the ICAEW, we ensure each step of the MVL is managed with precision and care.
Proven success: We’ve completed over 3,500 MVLs, distributing over £559 million to Shareholders.
Let Clarke Bell help
If you’re considering closing your solvent company, Clarke Bell can guide you through the Members’ Voluntary Liquidation process. With over 30 years of experience, we’ll ensure the process is smooth, secure, and tailored to your company’s needs.
Contact us today for a free, no-obligation consultation and learn how we can help you get the most out of the MVL process.
