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There can be any number of reasons why you want to close your business that is solvent - here's some examples
Whatever the reason to lose your solvent company, entering a Members Voluntary Liquidation is often the best option and can have tax benefits. But first, let’s clarify what we mean by a company that is solvent, which has to be ascertained before you are able to enter into a Members Voluntary Liquidation, or MVL.
A Company Is Considerered Solvent When:
- It is able to pay all its bills when they are due
- It is able to pay all its creditors
- It is able to meet all its contractual obligations, i.e. any lease or loan agreements
- It is able to pay all taxes due to HMRC upon closure of the company
If your company meets these criteria, you are able to enter into an MVL to close your company, which can be handled by one of our highly skilled, professional insolvency practitioners (liquidators).
At this point, we must highlight that a Members Voluntary Liquidation is not the same as a Creditors Voluntary Liquidation. Whilst both are undertaken on a voluntary basis, a MVL is only applicable for solvent companies and a CVL is for insolvent companies.
The MVL process
As with any limited company liquidation process, it must be handled by a licensed insolvency practitioner (liquidator). For us to be able to proceed with an MVL on your behalf there are certain criteria to meet:
- The company has completed its business, i.e. the project or contract has finished, and it has ceased trading.
- The company as completed, or is in the process of completing, the filing or its accounts and that the company’s tax returns are concluded up to the date trading ceased
- The company has deregistered, or is in the process of deregistering, in terms of PAYE, NIC, VAT and Corporation Tax
- The company has sufficient funds to complete the MVL process once all creditors have been paid
- The company has sufficient funds to pay any unpaid creditors within 12 months from the date the MVL process started. Note: any creditors paid once the liquidation process has started are entitled to what is called statutory interest. This is paid in addition to the amount owed from the date the company entered an MVL. Currently, it is 8% of the debt owed.
Once these criteria are met, the actual Members Voluntary Liquidation process runs in a similar way to a CVL process, but there are differences:
- The director or directors of the company must reach a resolution and then make a statutory declaration of solvency. Along with this declaration, they must have a closing financial statement which has been ‘sworn’ by a solicitor.
- 5 weeks later, the shareholders of the company convene and the directors will ask them to pass a resolution – i.e. agree to – putting the company into an MVL. Once agreed, one of our experienced, professional liquidators can be appointed to handle the process.
- At this point, our liquidator takes over the company in order to handle the liquidation process – the directors’ no longer have any power. Our liquidator will publish an advert in The Gazette, settle any claims from creditors, realise any assets and then distribute monies to directors and shareholders. It is also possible for some or all of the company’s assets to be distributed to directors and shareholders instead of being sold; this is known as ‘in specie’ distribution.
- Once the MVL is finalised, the company is dissolved and removed from the Companies Register
What are the Members Voluntary Liquidation Tax Benefits?
One of the main advantages of liquidating a solvent company is the potential tax benefits. Any dividends to shareholders or directors, i.e. realised funds from the sale of assets or ‘in specie’ distribution, are considered capital distribution, instead of income distribution. Therefore, they are subject to Capital Gains Tax (CGT), which is a lower percentage of capital than the percentage of tax due on an income distribution.
The added Members Voluntary Liquidation tax advantage is Business Asset Disposal Relief, or BADR. Formerly known as Entrepreneur’s Relief, BADR reduces the amount of CGT paid on qualifying capital gains – i.e. monies received in respect of the sale of a closed business’s assets or in specie distribution – and the current level is 10%. However, there are certain criteria to be met in order to qualify for this tax benefit.
Are you looking to close a solvent company and want to enter a Members Voluntary Liquidation? Have you taken our survey but need more information? Our highly skilled, professional team of insolvency practitioners are on hand to help you with your MVL. Call us today.