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A solvent liquidation (Members Voluntary Liquidation or MVL) is a method of winding down a company which has ceased to trade but is still solvent.
A solvent liquidation (Members Voluntary Liquidation or MVL) is a method of winding down a company which has ceased to trade but is still solvent. This means that all creditors have been or will be repaid in full, and there are surplus funds to return to the shareholders.
The main advantage of an MVL is that it can be a highly tax efficient method for shareholders to be repaid their capital from a dormant business, because all distributions made in the liquidation are treated as capital gains rather than income. Capital gains treatment should lead to much lower tax liabilities than the equivalent dividends, especially if Entrepreneurs Relief also applies.
In addition to tax advantages an MVL also provides more finality compared to a striking off. Because the liquidator must follow a formal procedure to identify potential creditor claims, the prospect of claims arising in the future and leading to complications is much reduced.
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First, the company must appoint a licensed Insolvency Practitioner (IP) who will assist in placing the company into MVL and ultimately become the liquidator. Prior to the liquidation commencing the IP will assist with the following procedural steps.
The liquidator has three main functions:
The most important part of an MVL is getting formal clearance from HM Revenue & Customs in relation to PAYE, VAT and Corporation Tax. This means that they are satisfied all financial matters are concluded and no further queries can be raised in the future.
Once all creditors are paid and assets distributed the liquidation is completed and the company is struck off the register of companies.
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