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Understanding Members’ Voluntary Liquidation (M.V.L.) – A Guide for Limited Contractors and Small Business Owners

Understanding Members' Voluntary Liquidation (M.V.L.) A Guide for Limited Contractors and Small Business Owners

Understanding Members' Voluntary Liquidation (M.V.L.) A Guide for Limited Contractors and Small Business Owners

Members’ Voluntary Liquidation (M.V.L.) is a process used by solvent companies to close down their business in an orderly and tax-efficient manner. This method is ideal for limited contractors and small business owners who have decided to cease trading but want to ensure that all legal obligations are met and any remaining assets are distributed properly.

In this article, we will look into the M.V.L. process, providing examples and insights from Tom Fox, Head of Insolvency at Umbrella.UK Insolvency, based in Cheshire, South Manchester.

What is an M.V.L.?

It is a formal process used to wind up a solvent company. Unlike other forms of liquidation, it is initiated by the company’s directors and approved by its shareholders. This procedure ensures that all debts and liabilities are paid off before any remaining assets are distributed among the shareholders.

When to Consider an M.V.L.

Limited contractors and small business owners might consider this for various reasons:

  • Retirement – The owner is retiring and has no one to pass the business on to.
  • Business Closure – The company has achieved its objectives and is no longer needed.
  • Restructuring – The business is being restructured, and certain entities need to be closed down.

Tom Fox from Umbrella.UK Insolvency explains, “An M.V.L. is a valuable tool for solvent businesses looking to close down in a tax efficient way and return any remaining capital to shareholders. It provides a structured way to handle the dissolution process and ensures that all legal obligations are met.”

The M.V.L. Process

The process involves several steps:

  1. Board Meeting – The directors must hold a board meeting to agree to propose an M.V.L.
  2. Declaration of Solvency – The directors must swear a statutory declaration of solvency, stating that the company can pay its debts within 12 months.
  3. Shareholders’ Resolution – A special resolution must be passed by the shareholders to approve the M.V.L. and appoint a licensed insolvency practitioner as the liquidator.
  4. Liquidation – The liquidator takes over the company, settles any outstanding debts, and distributes any remaining assets to the shareholders.
  5. End of Liquidation   – A final report is issued to Companies House and the company is formally dissolved shortly thereafter

M.V.L. Case Study – Closing a Limited Contractor Company

John, a limited contractor in IT, has decided to retire. His company is solvent, and he wants to ensure that the closure is handled efficiently. John opts for an M.V.L. to close his limited company. He contacts Umbrella.UK Insolvency, where Tom Fox, a Licensed Insolvency Practitioner, guides him through the process.

Tom Fox explains, “For limited contractors like John, an M.V.L. offers a clear and efficient path to close down their company. By appointing a Licensed Insolvency Practitioner, they can ensure all debts are settled, and any remaining assets are distributed in a tax-efficient manner.”

Benefits of M.V.L.

It provides several advantages:

  • Tax Efficiency – Distributions made to shareholders can benefit from Capital Gains Tax treatment, potentially offering significant tax savings.
  • Control – The directors and shareholders retain control over the process, ensuring that the company’s closure aligns with their interests.
  • Clean Break – It provides a clean break, allowing business owners to retire or move on to new ventures without lingering obligations.

Tom Fox, Head of Insolvency at Umbrella.UK Insolvency, emphasises the importance of professional guidance during an M.V.L. “Engaging with a licensed insolvency practitioner is crucial for ensuring that the process is handled correctly. It provides peace of mind that all legal and financial obligations are met, and it maximizes the returns to shareholders.”

Conclusion

Members’ Voluntary Liquidation is a powerful tool for limited contractors and small business owners looking to close their solvent companies in an orderly and efficient manner. By following the process, you can ensure that all debts are paid, and any remaining assets are distributed to shareholders.

If you are considering an M.V.L., consulting with experts like Tom Fox at Umbrella.UK Insolvency can provide valuable guidance and support throughout the process.

For more information or to schedule a free initial consultation, complete our website call back form or call us. Take control of your company’s closure and ensure a smooth transition.