Returning capital to shareholders is often achieved by way of a solvent, or Members’ Voluntary Liquidation (MVL). This is a formal insolvency process whereby a solvent company is wound up, most frequently when it’s at the end of its life or no longer required. An MVL will result in the appointment of a qualified insolvency practitioner as a liquidator to oversee the process. The liquidator will take reasonable steps to realise all known assets, identify and settle all potential creditors of the entity and then distribution residual assets to its shareholders.
An MVL provides directors with additional comfort that they have taken all necessary steps to identify and resolve outstanding issues, including creditor claims, prior to the dissolution of an entity and is distinguished from insolvent forms of liquidation by all or a majority of the directors swearing a formal Declaration of Solvency (“DoS”) that the entity is solvent and can pay all its debts, including statutory interest, in a period not exceeding 12 months from the commencement of the winding up.
Following the swearing of the DoS, resolutions are passed by shareholder(s) to place the company into MVL and to appoint a liquidator.
The other most common form of elimination of solvent entities in the UK is by way of strike-off. An MVL commonly presents a number of benefits as opposed to a strike-off:
- An MVL will result in the appointment of an independent liquidator who will advertise for creditors’ claims and notifying all known and potential creditors, thus flushing out potential creditor issues and mitigating risks for directors;
- Distributions during the course of a MVL will typically be deemed to be capital distributions, which present tax advantages for shareholders;
- In addition to the above, there may be other tax benefits available in a liquidation as opposed to a strike-off, for example Entrepreneur’s Relief may be available to shareholders;
- An MVL will also allow the liquidator to distribute assets in-specie or in-kind, allowing certain assets to be realised and distributed in a practical manner.
At Cork Gully, our team has years of experience dealing with solvent liquidations and will carry out this process for you quickly, efficiently and in a cost-effective manner.