You can only use an MVL if your company is solvent (i.e. it can pay all of its debts).

You may wish to pursue an MVL if:

• You want to realise the assets of the business for yourself and other shareholders in a tax efficient manner
• The company has completed its contract and the director/shareholder has found employment elsewhere
• You want to step down from the family business and nobody else wants to run it
• You want to retire

There are a number of tax benefits to using an MVL. Subject to personal circumstances, funds that are distributed through an MVL are subject to lower rates of taxation.

Depending on the amount of capital that’s tied up in your business, withdrawing the money may be treated as a low-tax capital gain rather than a higher-tax income or dividend.

You may also qualify for Entrepreneur’s Relief and benefit from a 10% tax rate on distributions.

How it works

Professional advice

Directors should seek professional advice both for the company and for themselves personally in respect of their own tax affairs.

Formal instruction

The Insolvency Practitioner will start preparing all the necessary documentation that will need to be agreed by shareholders. A meeting of the board will decide when and how an MVL resolution takes place and the Directors must instruct an Insolvency Practitioner to formally begin the process.

Declaring solvency

To pursue a MVL, the directors on behalf of the company, must make a statutory declaration that states that the company will be able to repay its debts (and interest) within a fixed period, not exceeding 12 months. This is a legal document, backed up by a company’s balance sheet. 

Members’ meeting or written resolution

Members will vote on whether to pursue an MVL. The resolution will pass if three-quarters of the members (based on shares) are in favour of it. Voting can either be at a meeting or in the form of a written resolution.

Liquidation appointment and realisation

Once a resolution has been passed, the appointed liquidator will fulfil the rest of the legal obligations required for an MVL, including dealing with claims from creditors and obtaining clearance from HMRC.

The Liquidator will then distribute surplus funds to shareholders and prepare statutory reports on the liquidation.

Umbrella.UK Insolvency has experience handling MVLs for a range of small and large clients. Get in touch with Umbrella.UK Insolvency today for a free*, confidential consultation. Call: 0800 611 8888, email us or visit our dedicated website for more information

*We don’t charge for an initial consultation, but it may lead to an insolvency solution where our pre-appointment costs are reimbursed as part of the fee structure that creditors approve.

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Thomas Fox LLB MIPA is an employee of Umbrella Accountants LLP and is licensed to act as an Insolvency Practitioner in the UK by the Insolvency Practitioners Association. Professional Indemnity Insurance - In accordance with the disclosure requirements of the Provision of Services Regulations 2009, the firm’s professional indemnity insurer is Arch Insurance (UK) Limited, 5^th Floor, Plantation Place South, 60 Great Tower Street, London, EC3R 5AZ.

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