When a company reaches the end of its natural life, perhaps due to the retirement of its directors, the end of a specific project, or a group reorganisation then a solvent liquidation, known as a Members’ Voluntary Liquidation or MVL could be appropriate. In certain circumstances an MVL can prove very tax advantageous when there are surplus assets available to be distributed to shareholders.
The process is instigated by the company directors who must make a statutory declaration of solvency (distinguishing it from being insolvent). A meeting of members (shareholders) is then held to resolve that the company be wound up and appoint a liquidator.
The liquidator, who must be a licensed insolvency practitioner, will realise the company’s asset, settle the claims of any creditors and finalise the company’s tax position. Any funds (or assets which can be distributed ‘in specie’) that remain after settling creditor claims can then be distributed to the company shareholders.
The distribution made by the liquidator is a capital distribution and in the hands of the shareholder is subject to capital gains tax rules and reliefs. In addition, in certain instances the distribution will also attract entrepreneurs’ relief. It is recommended that shareholders take independent tax advice to clarify whether these reliefs are available.