Frequently asked Questions
- General Questions
- Liquidation Bank Account
- Creditors/Debtors, Liabilities, Loans etc
- Capital Distribution
Members Voluntary Liquidations
An MVL is a liquidation process available to solvent companies, enabling the shareholder/s to appoint a liquidator to formally close down their company.
Closing your company through an MVL process allows your company assets to be transferred to you by way of capital distribution and thus be potentially eligible for Business Asset Disposal Relief (formerly Entrepreneurs’ Tax Relief). This is a generous allowance whereby you are taxed at 10% on the entirety of the company assets, potentially saving you £1000s
Throughout this FAQ we refer to your Net Asset Value, which is simply the value of what your company owns outright, minus what it owes, giving the resulting figure of the company’s monetary worth (the Net Asset Value).
No matter the reason for the company’s closure, be it retirement, a sale after a merger or simply closing the doors on a company that is no longer required, as long as you have over £25,000 of net assets to distribute between shareholders an MVL will probably be the most tax efficient way to close your business.
The other route of closing down a solvent company is by way of Strike Off (also called dissolution). While Companies House only charges a nominal fee (£10) to action a strike off, you will pay income tax on your net assets. If you have over £25,000 of net assets after all liabilities have been paid, the tax savings assigned to an MVL compared to a strike off will usually mean an MVL will see more of your hard-earned cash find its way back into your pocket.
To answer this, let’s use an example:
Mr Jones has a successful Ltd company and has been contracting for the last two years. He now has a role inside IR35, however, and no longer needs his limited business. He is the sole shareholder/owner and has £50,000 in the bank and is VAT registered.
There are two main options open to him:
Option 1 would be to strike the company off. In doing so, the owner’s £50,000 would be taxed at 32.5% (taxed on the shareholder as dividends), costing him £16,250. Companies House charge an additional (albeit nominal) administration charge of £10 leaving funds in the bank of £33,740.
Option 2 would be a Members’ Voluntary Liquidation (“MVL”). Using this route, the shareholder would benefit from the Business Asset Disposal Relief (formerly Entrepreneurs’ Tax Relief), taxed at only 10%, once the Insolvency Practitioners’ (IP) fees have been deducted.
Based on the asset position of £50k, a typical Insolvency Practioners’ fee will be circa £2,000 plus expenses and VAT. The expenses will be a statutory bond at £40, statutory advertising at £317.25 and sundry expenses at £12.92, totalling £2,370.17 plus VAT (£474.03). If the company is VAT registered, the VAT can be reclaimed back by the IP and distributed to the shareholder, so in this instance we will assume this has been actioned and add it to the total saving.
The Insolvency Practitioners’ fees are then deducted before the Business Asset Disposal Relief of 10% is applied, so in this case the fees (£2,370.17 are subtracted from the assets (£50,000) which leaves £47,629.83. This amount would then be taxed at 10% = £4,762.98.
Therefore, by using the MVL the total cost would be £7,133.15(£2,370.17 + £4,762.98). This option will result in the shareholder receiving a total of £42,866.85 after liabilities and taxes paid, leaving him £9,126.85 better off than a company strike off.
As you can imagine the higher the net asset balance, the higher the saving.
Looking at the example above, you will have probably noted the key difference in the contributing factors that make up the saving using an MVL is the 10% tax rate utilising Business Asset Disposal Relief (formerly named Entrepreneurs’ Tax Relief).
So, the 2 main benefits of using an MVL are:
Utilising an MVL enables you to take advantage of Business Asset Disposal Relief, with all net assets (after debts have been settled) being taxed at 10%.
Fast Distribution/Cash Release:
By signing a shareholder’s indemnity, we can release a proportion of your company’s net asset value before HMRC has confirmed clearance. While different Insolvency Practitioners release funds at different stages of the process which can sometimes take up to 60 days, SFP can usually release up to 100% (varies as per asset level) of your net asset value within 7 days of appointment.
As mentioned above, as long as the company you are looking to close is solvent and has over £25,000 in net assets once all liabilities have been paid and has been trading for longer than 24 months, an MVL is probably the right route for you.
Fees & Expenses
You will be charged an initial fixed fee by your chosen Insolvency Practitioner, as well as some expenses, which are explained below. Insolvency Practitioners’ fees do vary and it’s important you understand what level of service you are receiving for the cost.
There are various expenses you will have to pay as well as the Insolvency Practitioner’s fee. Almost all these expenses are unavoidable third-party costs incurred by the liquidator during the process of placing the company into an MVL. These costs are charged along with the Insolvency Practitioner’s fee and then the Insolvency Practitioner pays the third parties as soon as these raise their own invoices. In this way, the liquidation process moves quicker as the Insolvency Practitioner is able to apply for the VAT refund on the costs straight away.
Statutory Bond – A statutory bond is best described as a form of insurance to protect your capital while it is in the hands of the Insolvency Practitioner. All Insolvency Practitioners are legally required to take out a statutory bond upon being appointed to manage a solvent liquidation.
The cost of a bond operates on a sliding scale based upon the asset capital within the company.
Statutory Advertising – As part of the MVL process, the IP is obliged to publish various notices in the Gazette. This will make the liquidation public knowledge so any outstanding creditors can submit a claim for monies owed before the liquidation is officially closed.
Three notices must be published: one on appointment of an IP, another on resolution and one to serve as a notice for claims.
The advertiser’s current cost for each advert is £105.75
Sundry Expenses – These are nominal IP costs directly related to the MVL. Usually these are made up of:
- AML (Anti-money laundering search) – £2.92 per individual search
- Stationery, photocopying and postage – £10
Taking into account all of the above, let’s use an example to set out the costs clearly:
Net Asset Value: £50,000 (i.e. the balance after any remaining liabilities owed)VAT@20% = £474.03 (can be reclaimed back during the liquidation process if the company is VAT registered (or was VAT registered when it ceased to trade))
|Typical IP Fee:
|Statutory Bond (based upon asset value) – £40
|Statutory Advertising (three adverts) – £317.25
|Sundry Expenses – £12.92
|Total IP costs:
The IP costs are then deducted from the net asset value before Business Asset Disposal Relief (BADR) is applied, so in this case:
|£50,000 – £2,370.17:
|Shareholders’ distribution taxed at 10% (BADR) = £47,629.83 @10%
|Total cost of MVL
|IP fees and expenses – £2,370.17
|Tax on distribution – £4,762.98
In this case, the total cost to the shareholder of the MVL process is £7,133.15 leaving the client with £42,866.85 from the initial net asset value of £50,000.
Obviously, the costs are reflective of the initial asset value and will vary as the net asset value increases.
SFP – Our Service
Founded in 2002, SFP Group are a fully regulated & leading specialist Turnaround & Restructuring company operating on a national level, based in Canary Wharf, London.
The group is made up of various divisions comprising of Turnaround, Restructuring, Property, Recoveries, Corporate Solutions and a Financial Brokerage.
Last year more clients trusted SFP to handle the closing down of their business via an MVL than any other IP in the UK, a testament to our professionalism, expertise & level of service in this area.
SFP are the IP of choice for the top contractor accountants in the country to pass their clients onto, as well as over 100 other chartered accountancy firms across the UK, again displaying a proven level of service and expertise when it comes to trusting us to handle their clients’ affairs.
SFP have won multiple awards in various categories of the prestigious Business Moneyfacts Awards, attracting the ‘Best Business Recovery Specialist’ award 5 times as well as the ‘Invoice Finance Broker of the Year’ award 6 times in the last decade.
We are the market leading IP practice for clients who wish to close down their solvent companies via an MVL.
No. An MVL is a solvent liquidation where there are surplus assets to cover all liabilities, meaning we are helping you to close down a successfully run business, but by law it must be done by an insolvency practitioner. There should be no adverse effect to you or your credit rating.
There are various benefits in choosing SFP to deal with your MVL:
- Distribution of up to 100% of your company’s net assets within 7 days of appointment
- Number 1 provider of MVLs in the UK
- Peace of mind: your money is in safe hands
- Highly experienced expert MVL team
- No hidden fees!
- Personalised service with your own dedicated account manager
SFP Group are a regulated insolvency specialists with great experience in handling procedures for businesses large and small. All funds that pass under our care are handled and distributed with the upmost care and attention. All of our insolvency practitioners are licensed and our liquidation operations are overseen by the Recognised Professional Bodies.
To provide added comfort, we can assure you that, as required by law, a bond is arranged whereby the surety undertakes to be liable for losses caused in the extremely unlikely event of the liquidator’s fraud or dishonesty. Although our insolvency practitioners are bonded generally, they also arrange a bond specific to each insolvency case and the cost for this specific bond is charged as an expense at the start of the liquidation (See Statutory bonds in the Members’ Voluntary Liquidation (MVL) section).
Yes. Our professional indemnity insurers are Travellers Insurance Company Limited, Saint Paul House, 61-63 London Road, Redhill RH1 1NA (coverage relates to the United Kingdom (including Channel Islands and the Isle of Man) and the Republic of Ireland).
The MVL Process
We have a section on our website that explains the MVL process in stages – How it works.
We are able to work as quickly as you like. We shall require the final accounts and tax returns to be complete and all liabilities paid (where possible) before the company can go into liquidation, however we can start the process our end before this time and send you all the liquidation documents in advance for your review.
After your initial distribution within 7 days of appointment, in cases where the first distribution was up to 80%, a final distribution of remaining assets will be held until such time as we are satisfied that all other matters, including the company’s tax position, are cleared. HMRC tax clearance can take up to 6 months and on occasion longer than this.
No. All correspondence can be undertaken via email and we can accept all signed documents in this way as well.
You can use your own solicitor to witness any documents, which usually incurs a small fee (circa £20 – £100). However due to having our own relationships with trusted solicitors, by using one of SFPs recommended solicitors we can arrange this at no extra cost to you.
Yes, the law requires us to do this before the liquidation begins. We will use external electronic databases to check the identities of directors and shareholders, but we will also ask you to provide proofs of identity, e.g. passports and utility bills.
If possible, the current insurance policy should be maintained throughout the Liquidation process with the Liquidator’s name noted which will prevent the requirement to take out any further cover.
Run-off insurance should be arranged to cover the company up to dissolution. Your current insurers may be able to help with quotes.
The pension provider should be contacted prior to liquidation as it is easier to assign to new trustees before liquidation.
It takes longer for us to deal with pensions during the liquidation as we would be required to complete forms before they can speak to us.
From our understanding, this is not possible for two years from receiving your final distribution, as it may affect your entitlement to Business Asset Disposal Relief (formerly Entrepreneurs’ Tax Relief).
This can be sworn abroad in front of a notary, solicitor or equivalent.
Yes, we would ask you to de-register from the flat rate scheme onto the standard scheme prior to liquidation to ensure that reclaiming the VAT on our fees and expenses will not be a problem.
On rare occasions, the liquidator may ask for some of the records, but any books and records left with you will need to be kept safe by you for at least 15 months after the end of the liquidation. Although we will change the company’s registered office (unless it is a Scottish-registered company), you will remain responsible for the statutory books.
The accountant will have to ensure that the executor is appointed as the Director so that they can swear the Declaration of Solvency.
If the Director were also a shareholder, once the probate is obtained the executor would be required to sign share transfer forms. We will require a copy of the probate and share transfer forms.
This should be completed by the accountant, before we can liquidate the company.
No. Once the company is in liquidation, the Directors’ powers cease and the liquidator takes control.
It is a statutory requirement for the liquidator to have a bond in place for every liquidation based on the asset value. The bond is provided by a third party provider and the premium paid from the company’s reserves.
In every liquidation, the liquidator has to take control of the assets of the company. If you do not feel comfortable transferring the funds before the liquidation begins, we can write to the bank on appointment and once they have completed their own internal checks, they will transfer the funds to us. This will mean an initial distribution will not be completed until we have received the funds and from experience it can take up to 6-9 weeks.
We will write to the bank requesting the account closure and the transfer of any remaining funds to the liquidation account.
Depending on the amount involved and if the shareholder is happy to lose the interest, the bank will return the capital once a company is liquidated.
Alternatively, we would do the following If a large sum is involved and the Director/shareholder does not want to lose the interest.
Where there is a sole shareholder and sole director involved, it may be possible for the shareholder to speak to the bank to have the bank account transferred into their personal name. This asset would need to be represented in the final account; this would then be distributed in specie on appointment. This is a paper exercise where we distribute the asset to the shareholder.
If there are any other shareholders, we are happy to discuss further how this can be managed.
Yes that’s fine and we would still write to the bank on appointment, confirming that the bank account is closed.
Ideally all creditors should be paid prior to liquidation. This is why we wait for the final accounts before proceeding to liquidation.
The accounts are prepared up to cessation of trade. As soon as the payment of any final invoice has been received by the company, there should be no taxable income apart from bank interest after this point.
Unpaid creditors at the date of liquidation are entitled to statutory interest of 8% per annum.
Yes, the loan should be repaid to the company. If this is not possible and depending on the structure of the company, we may be able to distribute the inter-company debt in specie. This is a paper exercise where we distribute the inter-company debt to the shareholder at the value shown in the final accounts.
We will have to consider the current shareholding/Directorship of the company being liquidated and also the shareholding/Directorship of the company owing the money, as there may be a requirement for a formal Deed of assignment of the debt.
The loan should be repaid to the company if possible.
If the Director’s loan is still outstanding, we would distribute it in specie to the shareholder as part of the initial distribution. This is a paper exercise where we distribute the asset to the shareholder.
No. As part of our post appointment responsibilities, we will write to HM Revenue and Customs and request that any refunds due to the company should be paid to the liquidation account.
No. Upon liquidation we can request that the company bank account remains open until all debtor funds have been received before the funds are transferred to the liquidation account.
Ideally, we request that all liabilities are paid wherever possible prior to liquidation to ensure the process runs as smoothly as possible. This will reduce the time needed for the liquidation, meaning that your final capital distribution will not be delayed.
You should have any remaining fixed assets valued and you can purchase them prior to liquidation either for cash consideration or by way of a loan account transaction.
We can also distribute these to the shareholder in specie (which is a paper exercise) as part of your initial distribution on appointment.
|Minus liquidator’s fee @ £2,406.60
|Assets after costs £97,593.40
|First distribution of 100% = £97,593.40
|Actual first distribution will be:
|£5,000 in specie
We ask you and your accountants to provide information on all known liabilities before the liquidation begins. We will send a questionnaire to help you do this. You should also consider whether there are any unusual parties that might have a claim against the company, for example previous customers who could claim that the company has failed to provide the agreed quality of service or goods or former employees who claim that they were not provided sufficient notice that they were being made redundant. A notice will also be published in the Gazette, which will serve as an opportunity for any other creditors to come forward, although in view of the serious consequences of converting to CVL, we urge you to identify all possible creditors at the start.
Yes we will reclaim the VAT back on our fees during the liquidation process, if the company is VAT registered (or was up to the point that it stopped trading).
You would need to return to the liquidator some or all of the funds/assets distributed to you as a shareholder after the liquidation commenced. If those are still insufficient to settle all liabilities, the liquidator will need to convert the MVL into a Creditors’ Voluntary Liquidation (“CVL”).
If the company turned out to be insolvent, then it is presumed that you did not have reasonable grounds for swearing the Declaration of Solvency (in which you will have stated that all claims (plus any statutory interest) and the liquidation costs would be settled in full within 12 months), which under law could result in a fine and/or imprisonment. The liquidator would also need to report on your conduct as a director and, if the Secretary of State considers that you are unfitted to be concerned with the management of a company, you could face disqualification proceedings.
We shall pay up to 100% (100% if assets are up to £250,000, 80% if assets are between £250,001 and £500,000, 75% if assets are between £500,001 and £1,000,000 and % to be agreed with the proposed Liquidator if assets exceed £1,000,000) of the net assets (i.e. after costs and any remaining liabilities) as an initial capital distribution usually within 7 days of liquidation (where the funds are transferred to us pre-liquidation; otherwise, it shall be once we are in receipt of the funds from the bank).
If the distribution was 80% or 75%, a further half of the balance held is distributed at month three and the remainder once the relevant clearances have been obtained from HMRC and we are satisfied that there are no further assets or liabilities.
Our distribution percentages are based on the following net asset reserves:
- Net assets below or equal to £250,000 – 100%
- Net assets between £250,001 and £500,000 – 80% (10% at month 3 and final 10% at closure)
- Net assets between £500,001 and £1m – 75% (12.5% at month 3 and final 12.5% at closure)
- Anything above £1m – we will review the company’s position and provide a tailor-made schedule
Initial distributions are completed within 7 days of liquidation, provided that all funds and correctly signed documentation have been received.
Yes, in cases where the initial distribution is up to 80% and depending on when the company is placed into liquidation.
For example, if a company is being placed into liquidation on 13 March 2021, the shareholders will be receiving a split distribution anyway. As an amount of 75% to 80% will be distributed immediately, the further distribution(s) will be made in the new tax year.
However, we cannot keep the liquidation open purely to accommodate distributions over two tax years.
There are number of possibilities:
Incorrectly signed documents received or an incomplete pack of documents received
We will require a complete pack of documents in order to proceed with the initial distribution. We provide step by step instructions to help you work through them. If we receive any incorrectly completed or signed documentation, we will need to ask you to make corrections to ensure that the legal requirements are met so that the liquidator can act.
Reconciliation of the final position
The position from your final accounts to funds/assets received will have to reconcile. The liquidator’s responsibility is to realise all assets; therefore the position would need to reconcile before we can complete the first initial distribution.
Poor quality of documents
The signed documents will have to be on a white background with no shading, as poor quality documents will be rejected by Companies House.
Lack of funds
We can only complete the initial distribution if the funds have been received!
We always strive to provide a professional and efficient service, however if you should have cause to complain, we ask that in the first instance you write to our Compliance Department, so that your complaint can be put through our internal complaints procedure. If you are not satisfied that your complaint has been resolved or dealt with appropriately, you may complain to: The Insolvency Service, IP Complaints, 3rd Floor, 1 City Walk, Leeds, LS11 9DA; email: email@example.com; phone: 0300 678 0015; website: www.gov.uk /complain-about-insolvency-practitioner.
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