It can be a daunting time for business owners closing down a solvent business. Owners are used to having full control and dealing with all business matters, therefore understandably, we are asked many questions before and during the process of a Members Voluntary Liquidation (MVL).
I thought it would be helpful to share some questions and answers, which may assist those considering a MVL in the future.
What is a MVL?
A MVL is a formal tax efficient method of closing down a solvent company and distributing remaining assets to shareholders.
How long does a MVL process take?
It should take approximately 6-12 months to complete and ends with the dissolution of the company. However, this is very much a guide. It is dependent on many variables, including the level and nature of assets a company has. The most common reason for it taking longer is due to delays obtaining clearance from HMRC. Clearance ensures that the revenue is satisfied the company has no outstanding returns or tax to pay. The HMRC delays with response times in restructuring are very topical at the moment, the professional bodies including The Institute of Chartered Accountants in Scotland (‘ICAS’) are trying to understand and resolve this matter.
What parties are involved in a MVL?
At the outset, the Directors and Shareholders of a company and an Insolvency Practitioner. The Directors swear a Declaration of Solvency in front of a Notary public, and the shareholders pass a resolution to appoint a Liquidator.
Once the appointment is “live” the Insolvency Practitioner, or Liquidator and his/her staff then acts on behalf of the company in all matters such as dealing with HMRC. Accountants, tax advisors and lawyers may also assist during the process where required. Any remaining debtors or creditors will also be contacted by the Liquidator.
There is significant cash in the company, when will this be distributed?
Providing there are no creditors to be paid and the Liquidator receives funds in from the company bank account promptly, the majority of cash can be distributed relatively quickly, usually within a few weeks of the appointment. The remainder of the cash will be distributed on obtaining tax clearance from HMRC.
What about other assets?
The Liquidator has the ability to distribute any assets in- specie as part of the process, in line with the shareholding. For example: cars, property, or assignation of a debt.
What about Creditors, will these be paid in a MVL?
Ideally any creditors (including funds due to the Directors) should be paid pre MVL. If required, the Liquidator will review and settle any creditors outstanding at the date of appointment, however statutory interest of 8% will also be payable.
What about dealing with HMRC?
All tax returns up to the date of appointment require to be filed and any tax paid. If there are refunds due, the Liquidator can ingather these during the process. After the date of the liquidation the Liquidator then deals with all HMRC matters including requesting tax clearance to close the liquidation.
Should the Company de-register for VAT?
A company should remain registered for VAT in order for the Liquidator to recover input VAT due to the company, on costs incurred in the MVL process. The Liquidator will de-register for VAT as appropriate.
Are there other options for closure of a company?
If there are very little/ no assets left in a business, a strike off may be a suitable process. Providing there has been no trade or change of name etc within the last 3 months, Directors can complete this process themselves and submit a from alongside a small fee to Companies House. If a company has greater than £25-30k of assets, then a MVL is usually a more suitable option.
Is there anything else to consider?
Shareholders should seek personal tax advice on the potential distributions and whether tax reliefs such as Business Asset Disposal Relief (‘BADR’) are available.
Hopefully this has been helpful and provided a bit of insight into the MVL process. If you are considering a MVL, or other wind down/closure options and have any questions please get in touch with our restructuring team who can advise on a suitable route for your business.