5 Reasons You Should Never Put Off The MVL Process

For many business owners, even just considering the potential possibility of liquidating their company is an incredibly difficult thing to do. There’s always a ‘but’ or ‘what if?’ to consider and there always will be for the kind of people who choose to take on the challenge of running their own business. However, whether you’re looking at a solvent liquidation or an insolvent liquidation, there is no good reason to delay once the decision has been made to proceed (and plenty of good reasons to move things forward, as you will soon see).
Delaying the company liquidation process can lead to unnecessary costs, legal risks, and financial losses, but exactly how and to what extent depends on whether you intend to pursue a Member’s Voluntary Liquidation (MVL) or a Creditor’s Voluntary Liquidation (CVL). With this in mind, we’re going to look at the reasons why you should never put off the company liquidation process over 2 articles, starting with MVLs.
Why Companies Should Not Delay a Solvent Liquidation
A Members’ Voluntary Liquidation is available to companies that are financially stable but wish to close down for reasons such as retirement, restructuring, or simply ceasing trade. While solvent liquidation is an orderly and planned process, delaying it can lead to several disadvantages.
Financial Efficiency and Cost Savings
Putting off the MVL process means the business will continue to incur operational expenses such as rent, utilities, insurance, and administrative costs. What’s more, you will need to continue filing for corporation tax, renewing licenses, and generally meeting a similar level of regulatory compliance as you would while actively trading. Needless to say, this can become costly, especially as you will likely be undertaking fewer paid activities while spooling down.
In short, promptly undertaking the MVL process will help to prevent any unnecessary erosion of cash retained in the business.
Legal and Regulatory Compliance
As alluded to above, companies often remain responsible for meeting regulatory requirements and compliance obligations even if they are no longer actively trading. A common trap that those undertaking an MVL fall prey to is they allow the process to drag or sometimes even stall completely. When this happens, deadlines for filing documents, paying taxes, renewing legal certifications, and so on are inevitably missed, which can often result in fines and other irritating complications.
Ensuring the MVL process moves along at a prompt and managed pace allows you to make sure the company closure is compliant and structured. This not only minimises costs but guarantees you won’t end up incurring additional ones in the form of late filing or payment penalties. This leads us nicely on to…
Control Over the Liquidation Process
A properly managed MVL allows business owners to oversee the distribution of assets, settle outstanding debts in an orderly manner, and maintain transparency with employees, suppliers, customers and other stakeholders. Delaying the MVL process may expose the company to unforeseen liabilities, such as claims from former employees or dormant contractual obligations. Additionally, creditor challenges may arise if debts or obligations that were previously accounted for become disputed. External pressures, such as changes in market conditions or tax policies, could also force a less favourable liquidation scenario where asset values decline or regulatory scrutiny increases.
Preserving Business Reputation and Stakeholder Relations
As touched upon in the previous point, a timely liquidation helps maintain the company’s credibility with stakeholders. This may not seem important for a company that is winding down its operations, but allowing the process to drag on can create uncertainty and erode trust, leading to negative perceptions of the persons involved. Unresolved obligations or prolonged inactivity may signal financial instability, making it harder for directors and shareholders to engage in future business ventures should they wish to. Additionally, relationships with professional advisors and financial institutions may suffer if closure is not handled efficiently, potentially impacting personal and corporate reputations in the long run.
Shareholder Benefits and Tax Considerations
Last but certainly not least, an efficient MVL process allows shareholders to access capital distributions sooner, avoiding prolonged asset lock-in. In some cases, tax reliefs, such as Business Asset Disposal Relief (formerly Entrepreneurs’ Relief), can provide significant tax savings, but these are subject to government policies and may change over time. Delaying liquidation increases the risk of unfavourable tax reforms that could reduce financial benefits and may also expose shareholders to market fluctuations, affecting the overall value of distributions.
By acting promptly, shareholders can maximise returns while taking advantage of the most favourable tax treatments available at the time.
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While there are undoubtedly costs and inconveniences associated with delaying the MVL process, delaying an insolvent liquidation can have far more severe legal and financial consequences. We will take a look at this in more depth in our next article.
If you require any further liquidation advice in the meantime, don’t hesitate to get in touch with our team who can answer your questions about solvent liquidation and begin to guide you through the MVL process if applicable.