Members Voluntary Liquidations (MVL)
When a company has completed its purpose or the directors of a company decide to retire, a Tax efficient way of releasing the surplus which may have accumulated is to place the company into an MVL.
Who uses a MVL?
Shareholders who need to distribute cash and assets in a tax advantageous way use a MVL.
The Tax advantage for shareholders is that a capital gain received on their shares will only be taxed at 25%, whereas if the surplus monies were taken out as salary, then these monies may be taxed at a much higher marginal tax rate.
A popular way to distribute certain assets to shareholders is to distribute them in specie i.e. in kind. Thus, freehold property may be transferred to shareholders directly. A significant advantage of in specie distributions is that no stamp duty is payable.
In the current downturn the advantage of liquidating property companies voluntarily using an MVL and distributing assets in specie is apparent. In such cases, a significant reduction in CGT will arise by comparison with the prior periods when property values were at high.
MVL process
To place a company into an MVL, the directors provide a Statutory Declaration of Solvency. This summarises the company's assets and liabilities and the directors state that the company will be able to pay all of its debts in full within 12 months of the commencement of the Liquidation. There may be serious consequences for the directors if they swear a Declaration of Solvency which is inaccurate.
A copy of the declaration must be sent to all shareholders, together with a formal notice of the shareholders meeting. At the shareholders meeting, a special resolution must be passed i.e. 75% of the shareholders voting must vote in favour of the resolution.
While the Companies Acts do not specifically identify who is qualified to be a liquidator of a company, Section 300A of the 1963 Companies Act makes it an offence for certain individuals, including an auditor, servant (e.g. accountant) or officer of the company to act as its liquidator.
Services
We perform MVL’s and advise directors about the procedures required.
Taking Assets and Cash out of Companies
Click for more information
