A Members’ Voluntary Liquidation (MVL) is a formal method of closing a solvent company. It is commonly used by directors who want to extract retained profits, retire from the business, or close a company that has fulfilled its purpose. An MVL provides a structured, compliant, and often tax-efficient way to wind up the company.
This article explains what an MVL is, when it should be used, and how the process works step by step.
What Is a Members’ Voluntary Liquidation?
A Members’ Voluntary Liquidation is a formal process used to close a company that can pay all of its debts in full. Solvency is key. The company must be able to settle its liabilities, usually within 12 months. The procedure is initiated by the company’s shareholders and must be managed by a licensed insolvency practitioner.
The insolvency practitioner, acting as the liquidator, is responsible for collecting the company’s assets, paying its debts, and distributing the remaining funds to shareholders. Because those distributions are treated as capital, the process can offer tax advantages over informal closure routes.
When Is an MVL Used?
An MVL is typically used when a company is solvent but no longer needed. Common reasons include:
- A director is retiring
- The company has completed its purpose or finished trading
- The business has been sold and is no longer active
- The company is dormant but still holds funds or assets.
In each case, the MVL allows directors and shareholders to close the company in a clean and efficient manner. It also ensures that any funds remaining in the company are distributed in accordance with legal requirements.
Who Can Use a Members’ Voluntary Liquidation?
To be eligible for an MVL, the company must meet specific conditions:
- It must be solvent and able to pay all its debts
- It should not be involved in any ongoing disputes or legal actions
- All company affairs should be up to date and ready for closure.
The directors must swear a statutory declaration of solvency. This confirms that the company can meet its obligations, including tax liabilities. Making a false declaration can have serious consequences, so directors must ensure the company’s financial position is accurate before proceeding.
A licensed insolvency practitioner is legally required to carry out the MVL. They guide the process from start to finish and handle all creditor and shareholder matters.
How Does the MVL Process Work?
The MVL process follows a structured series of steps:
Preparing the Declaration of Solvency
Directors review the company’s finances and prepare a declaration confirming the company can pay its debts in full. This legal document must be sworn in front of a solicitor before the process can begin.
Passing a Resolution to Liquidate
Shareholders vote to place the company into MVL. A special resolution is passed, usually requiring approval from 75% of shareholders.
Appointing a Liquidator
A licensed insolvency practitioner is appointed as liquidator. From this point on, they take control of the company’s affairs and manage the process.
Paying Creditors and Realising Assets
The liquidator ensures all debts are paid and collects or sells any remaining company assets. This may include cash, property, or other business assets. Typically, directors will have dealt with any debts the company may have had before they appoint the insolvency practitioner.
Distributing Funds to Shareholders
Once all liabilities are settled, the remaining funds are distributed to shareholders. These distributions are classed as capital and may be eligible for favourable tax treatment.
Dissolving the Company
After the liquidation is complete, final documents are filed with Companies House. The company is officially dissolved and ceases to exist.
What Are the Tax Benefits of an MVL?
One of the main advantages of an MVL is that distributions to shareholders are usually taxed as capital gains. This can be more favourable than income tax rates, particularly for higher-rate taxpayers.
If shareholders qualify for Business Asset Disposal Relief, they may pay just 14% Capital Gains Tax on the distributions. This makes the MVL process attractive for companies with significant retained profits, where a strike-off would result in those funds being taxed as income.
Careful planning and professional advice are important to ensure eligibility and compliance with HMRC rules.
What Happens After the MVL Is Complete?
Once the MVL process is finished, the company is removed from the Companies House register. All assets will have been distributed, and the company no longer exists as a legal entity.
Directors are released from their duties, and shareholders can use the distributed funds as they choose. The liquidator will provide a final report to confirm that the company has been fully wound up and that all obligations have been met.
This gives directors and shareholders the confidence that the closure has been handled properly and that no loose ends remain.
Choosing the Best Way to Close Your Solvent Company
A Members’ Voluntary Liquidation is a structured and compliant way to close a solvent company. It provides legal certainty, allows for tax-efficient distribution of profits, and ensures that directors meet their obligations throughout the closure process.
If your company is no longer needed but holds retained profits or assets, an MVL may be the most effective route to close it correctly and efficiently.
