Members' Voluntary Liquidation (MVL)
The Insolvency Act 1986 offers a number of opportunities for releasing wealth from solvent companies to their shareholders. Typically such a company will have disposed of its assets or business and settled most if not all of its liabilities. In such cases distribution by way of dividend may bear a substantial tax liability, and the company will eventually have to apply to Companies House for strike-off.
Capital distributions rather than income
MVL offers the opportunity for shareholders to receive payment from the liquidator which is treated as a return on capital rather than dividend income, with tax advantages such as entrepreneur’s relief which may be applicable. It also leads to the dissolution of the company and may draw a line under long standing guarantees and similar obligations.
Legal formalities of MVL
MVL requires shareholders to pass a special resolution, prior to which the directors must make a sworn declaration of solvency, listing assets and liabilities of the company as in a balance sheet, and stating that all liabilities can be paid in full within twelve months. On the passing of the special resolution, the liquidator assumes control, and responsibility, agreeing outstanding claims, typically relating to tax matters, and distributing available funds.
The procedure is agreed with the proposed liquidator, who must be a licensed insolvency practitioner, in advance, so the basis of liquidator’s remuneration and timing of distributions is established.
Distributions of non-cash assets
Liquidators in MVL can also distribute non-cash assets such as book debts and property to shareholders. It may therefore be possible to avoid having to sell company cars or more substantial items. For larger companies, this can take the form of a re-organisation under section 110 of the Insolvency Act 1986, where assets can be allocated to new companies, for example to divide businesses between activities for operating purposes, or between shareholders who wish to go their separate ways. Such re-organisations normally need careful consideration of tax implications and extensive preparation, and consultation with an insolvency practitioner at an early stage.
Please call John Paylor on 020 7002 7830 if you are the director or shareholder of a company and are considering its restructuring or dissolution and want to benefit from the tax advantages that can be utilized. Alternatively ask your company’s existing professional advisers to contact us to discuss the options available.