What is a Members Voluntary Liquidation (MVL)?

July 15, 2020

As customers reemerge after lockdown and employees are gradually weaned off state furlough, many businesses will have serious doubts as to whether they will pull through the ensuing recession. Faced with insolvency, some CEOs will be left with no choice but to throw the towel in.

But given the option to quit while the going is good or face the vagaries of a post-pandemic trading environment, many may still decide to liquidate their businesses. This is known as solvent liquidation, or a Members Voluntary Liquidation (MVL).


What does Members Voluntary Liquidation mean?

A Members Voluntary Liquidation (MVL) is a formal process for closing down a solvent company. This means the company must be in a position to settle its liabilities in full within 12 months.

MVLs are most often utilised as an exit strategy when a profitable company faces an uncertain future or no longer serves any useful purpose. It allows shareholders to extract the maximum profits and may also be used when directors wish to retire from the business.

Under Section 110 of The Insolvency Act 1986, MVLs can also be used by companies with complex corporate structures wishing to simplify or restructure.

An MVL is different from a Creditors Voluntary Liquidation (CVL), which is used when directors choose to liquidate their insolvent company voluntarily, rather than waiting for compulsory liquidation.

If a company has assets in excess of £25,000, a licensed insolvency practitioner will be required to liquidate these and distribute the proceeds to shareholders.


How does a Members Voluntary Liquidation work?

A Members Voluntary Liquidation is usually straightforward. The process is as follows:

Board of Directors Meeting

Directors of the company will hold a board meeting where they will decide to appoint a liquidator.

Declaration of Solvency

The company directors must write and sign a Statutory Declaration of Solvency. This declares that the company is solvent.

The number of directors required to sign the declaration varies depending on the size of the company. The declaration must be filed with Companies House.

Shareholders’ Meeting

The Directors will need to convene a meeting of the company’s shareholders or send a written resolution to them, depending on the company’s Articles of Association.

In either case, the shareholders must vote in favour of liquidation with a 75% majority. This must happen within five weeks of the declaration of solvency being filed with Companies House. The resolution must then be advertised in the London Gazette.

Liquidating the Company

The liquidator will realise all of the company’s assets and pay off any outstanding creditors. The liquidator will close the company’s accounts with HMRC by filing any PAYE/NIC, VAT and Corporation Tax returns and pay any outstanding balance. Any long-term contractual liabilities such as leases and finance agreements will be settled. The remaining proceeds will then be distributed between shareholders.

Final Steps

Once the process has been completed, the liquidator will convene a final general meeting among shareholders. A notice of liquidation will be sent to the Gazette.

MVL Shareholder Meeting


Benefits of a Members Voluntary Liquidation

One of the major benefits of a Members Voluntary Liquidation is that you can avoid the stress of a business potentially turning insolvent in the future. But it can also be a financially prudent choice.

In an MVL, any retained profits are treated as capital rather than income. This means that all funds distributed to shareholders are classed as capital distributions subject to Capital Gains Tax (CGT), rather than Income Tax. This makes MVL a more tax-efficient way of distributing company assets and profits to shareholders. Depending on your shareholder status, you may also be entitled to a tax relief scheme called Entrepreneurs’ Relief.


What is Entrepreneurs’ Relief?

Entrepreneurs’ Relief is a tax relief scheme which will reduce the rate of tax you are liable for. If eligible you will play a flat rate Capital Gains Tax of 10% up to a lifetime limit of £1 million.

As of 2019, there is a two year ‘qualifying period’ in which a number of conditions must be satisfied for a shareholder to be eligible for Entrepreneurs’ Relief. This is either the period prior to the liquidation commencing, or the period prior to the trade ceasing if trade ceases prior to liquidation. Liquidation may follow up to 3 years after the cessation of trade. To be eligible:

  • The shareholder must have been a sole trader, director or employee of the company.
  • The shareholder held at least 5% of the company's voting share capital.
  • They have not exceeded the £1 million lifetime limit.

If selling the whole, or part of the business, the shareholder must also be sole trader or a business partner for the qualifying period and must have owned the business for at least two years.

If an employee or director is selling shares they must have been employed by the company and held the required share capital for the duration of the qualifying period. The company must be a trading company (or holding company of a trading group) and must have traded within the qualifying period.


Investor’s Relief

In addition to the Entrepreneurs’ Relief, investors (not employed by the company) may also be eligible for 10% Capital Gains Tax, provided they satisfy certain conditions. Unlike ER, there is no requirement for 5% minimum shareholding in the company. To be eligible:

  • The shares must not be listed on a stock exchange.
  • The shares must be fully paid ordinary shares.
  • The issuing company must be a trading company or holding company of a trading group.
  • The investor must have held the shares continuously and for at least three years.
  • The investor, nor any person connected with the investor, should be an employee of the company or a company connected with it.


What is the Targeted Anti-Avoidance Rule (TAAR)?

The conditions under which a shareholder will be liable for Capital Gains Tax rather than Income Tax have been tightened in recent years however, with new rules coming into play under the Finance Bill 2016. This sought to end the practices of ‘Phoenixism’ and ‘Moneyboxing’, in which individuals would set up and close companies simply to take advantage of the tax-efficiency of the MVL. These new conditions are collectively known as the Targeted Anti-Avoidance Rule.

Distributions made under an MVL may be treated as income distributions under the following circumstances:

  • The company is a ‘close company’. This is a limited company with five or fewer shareholders, or a limited company of which all the shareholders are also directors.
  • The shareholder receiving the distribution is involved with a similar trading company within two years.
  • The intention of winding-up a business appears to be to avoid taxes.


How long does a Members Voluntary Liquidation take?

The duration of a Members Voluntary Liquidation depends on the complexity of the company’s financial situation. In cases where there are no outstanding liabilities, the MVL process should take no longer than 6 months.


When will shareholders get paid in an MVL?

Shareholders will usually receive a payment before the MVL is completed, depending on the assets and funds involved. Clients will sign a ‘deed of indemnity’ which will allow the vast majority of funds to be distributed to shareholders almost immediately while the liquidation process is ongoing. The signed indemnity provides protection against unknown creditor claims being made after funds have been distributed.


Distribution in Specie

In cases where there are physical assets which are not easily converted into cash, or where the distribution of the goods themselves is preferred, a specie distribution may take place. This typically involves land or property, though equipment and stock is also frequently transferred in this way.


How much does a Members Voluntary Liquidation cost?

The main cost of an MVL is determined by the insolvency practitioner responsible for the liquidation. There are also smaller fees, known as disbursements, which cover the cost of legal notices placed in the Gazette.

In addition, you will be required to pay a statutory bond while your company’s capital is in the hands of the liquidator. This can range from £40 with smaller MVLs to over £650 with larger companies that have millions of pounds to distribute.



If you are considering entering into a Members Voluntary Liquidation, you should seek advice from a licensed insolvency practitioner.

180 Advisory Solutions have years of experience in helping solvent and insolvent companies navigate challenging times.

Get in touch now for a free initial consultation.

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