A Members’ Voluntary Liquidation (MVL) is a process that brings a solvent company to a formal end, by liquidating the company and distributing its surplus funds and assets to the shareholders.
An MVL is only available to a solvent company. Its directors must declare that this is the case, and that all obligations to creditors can be met in full. An MVL may be the most tax efficient way to release funds held within a business at the end of its life. We always recommend that professional tax advice is sought prior to proceeding with an MVL.
The MVL process requires the directors of the company to swear a Declaration of Solvency. This confirms that they have reviewed the financial position of the company and have concluded that it can pay its debts in full plus statutory interest within a period of no more than 12 months.
Upon receipt of tax advice, an MVL may be the most efficient process to close the company and distribute the surplus assets to shareholders.
1. The company must have sought tax advice confirming that a distribution of capital by a liquidator is the most cost-effective means for shareholders to extract value.
2. The company’s accountant usually approaches Bailey Ahmad Business Recovery who will confirm its fee quote in writing.
3. The company ceases to trade and, to reduce the costs burden of the MVL “cleans” its balance sheet by realising all assets and meeting all creditor claims leaving the net surplus cash at bank as the only item in the balance sheet.
4. The company enters into a formal engagement with Bailey Ahmad to assist with placing the Company into MVL. This will include the company completing our online client questionnaire.
5. Bailey Ahmad carries out its own due diligence exercise, fully considering the circumstances of the case, to agree the liquidation and distribution strategy and timetable with management.
6. Upon receipt of the cash at bank into Bailey Ahmad’s client account, Bailey Ahmad provides the necessary documents to enable the shareholders to formally pass the resolutions to wind up the company and appoint the liquidators.
7. Around 35 days are given to creditors to prove their debts, which is advertised in the London Gazette and sent to HM Revenue & Customs (HMRC). Upon expiry of the notice and subject to no matters being raised by HMRC, most of the available funds are distributed to shareholders.
8. It is important to note that liquidation will commence a new tax period for the company. Accordingly, the company’s accountant will need to file corporation tax, VAT, PAYE and any other applicable HMRC returns covering all outstanding periods up to and including the day before liquidation (rather than the company’s normal accounting period), even if only Nil returns need to be filed. HMRC are likely to deny clearance until this has been dealt with.
9. The liquidators will then deliver a proposed final account to shareholders, giving at least eight weeks notice of a specified date on which they will deliver a final account stating that the affairs of the company are fully wound up. Subject to no matters arising in the interim, any retained funds are distributed on or just prior to the date the final account is delivered. The company is then automatically dissolved approximately three months following filing the final account with the Registrar of Companies.
It can take a company’s pre-liquidation bankers weeks and sometimes months to pay across cash at bank to liquidators, simply due to internal banking procedures in a liquidation scenario. Accordingly, shareholders can be spared the considerable expense of ongoing bank charges and additional administration costs in the liquidation if the cash is transferred to Bailey Ahmad Business Recovery and the company bank accounts closed prior to liquidation.
This is largely dependent on how quickly the company’s directors and its accountant can ensure the balance sheet is clean, de-register for VAT and ensure that any PAYE scheme is closed. Once the balance sheet “cleansing” exercise has been completed by the directors, the company can usually be placed into liquidation very quickly – in a matter of days, if necessary.
Subject to no unexpected claims being received, it usually takes 6-7 weeks once in liquidation for the first distribution to be made. This timescale can usually be kept to if the company’s accountant has promptly dealt with the matters referred to in step nine above.
Bailey Ahmad Business Recovery is an independent insolvency practice and does not carry out audit, accounting or taxation work.
Any failure on the company’s part to file outstanding returns for the period up to and including the day before liquidation can result in considerable delay in the process and the distribution of available funds to shareholders. Accordingly, a budget for the company’s accountant’s fee for dealing with these matters is usually agreed and the fee paid prior to liquidation. This enables any VAT on the fee to be re-claimed on the final pre-liquidation VAT return in order that the balance sheet is as clean as possible by the time the company is placed into liquidation.