Solvent Liquidation

A tax-efficient way to divest part of a business or distribute surplus funds at the end of a company's life.

This site explains solvent liquidation (Members' Voluntary Liquidation or MVL) and other ways to return surplus company funds to shareholders.

An MVL is a formal process for bringing the life of a limited company to an end so that the company can distribute its remaining assets to the shareholders.  This can happen for reasons of retirement, intractable shareholder dispute, or simply because the limited company is no longer needed. The process can be done informally too, without the expense of a liquidation, subject to certain conditions, which is explained also.  The company must be solvent, i.e. it can afford to pay all its creditors so that there is something left over for the shareholders.  If the company is insolvent, it must be dealt with by another type of insolvency procedure, whether administration, receivership, voluntary arrangement, creditors' voluntary liquidation or compulsory liquidation.

The main advantage of the solvent liquidation procedure is that distributions made in the liquidation count as capital receipts in the hands of the shareholders rather than income, and are subject to capital gains tax rather than income tax.  This is likely to be beneficial if Entrepreneur's Relief is available for liquidations of trading companies

Although MVLs are for solvent companies, the process is in many ways similar to handling an insolvent liquidation, for this reason, only a Licensed Insolvency Practitioner can legally be appointed Liquidator in an MVL.

An MVL can also be used in a tax-efficient manner where a company running more than one business wishes to split off one or more businesses.  This is known as a Section 110 reconstruction and is explained below.

Philip Beck is a Licensed Insolvency Practitioner operating since 1996 with substantial experience in undertaking liquidations, both solvent and insolvent.

Solvent Liquidation Questions and answers.

What are the tax advantages of a solvent liquidation ?

What is the procedure for putting a company into solvent liquidation ?

Can this be done informally without the expense of liquidation ?

What is Extra-Statutory Concession C16 (ESC C16) ?

What are Undistributable Reserves ?  What can be done about them ?

What is Bona Vacantia ?

How much does it cost to put the company into solvent liquidation ?

What is a Section 110 Reconstruction and how can it achieve a tax-efficient disposal of part of a company's business ?

What happens if creditors' claims arise during the liquidation ?

What happens at the end of the liquidation ? Can the company ever be restored to the register if necessary ?

Please note that this site deals only with company and tax law in the United Kingdom of Great Britain and Northern Ireland.   It is not applicable to other jurisdictions.

Copyright © Philip Beck Insolvency Practitioner, Cambridge UK, 2010. Solvent Liquidations (MVL)s explained.

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