Can A Solvent Company Be Liquidated?

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Liquidation is often first associated with struggling and insolvent companies. When unable to pay their debts, many are left with no option but to liquidate – either out of choice through the creditors voluntary liquidation process or through compulsory liquidation following a winding-up petition. However, there are circumstances in which it might be appropriate to close a solvent company and liquidation can be an appropriate solution in many cases. 

What Is The Process For Liquidating A Solvent Company?

The process for liquidating a solvent company is slightly different in comparison to the process used for liquidating an insolvent company. When a company has more assets than liabilities, it can opt for a member’s voluntary liquidation (MVL) to wind up affairs in an appropriate manner. 

The MVL process is kickstarted by directors wishing to close their solvent company and extract cash or assets in the most tax-efficient way. To do this, they should first consult a licensed insolvency practitioner who can advise on whether liquidation is a suitable option and instruct on appropriate next steps. Directors will need to complete a Declaration of Insolvency that proves that any outstanding debts will be settled promptly.

For the liquidation of any solvent company to commence, shareholders must vote in collective agreement and the decision must be announced in the Gazette. A number of additional steps in the process then follow, after which the nominated insolvency practitioner can sell company assets, distribute the funds to shareholders and dissolve the company by applying for the company to be struck off the Companies House register.

Why Liquidate A Solvent Company?

There are two main reasons why company directors may wish to liquidate a solvent company through members voluntary liquidation. These are:

  • Instances where a director/directors are retiring and they want to close down the business in the most efficient way.
  • Instances where the business owner decides that the company has come to the end of its useful life but still has assets that exceed its liabilities. 

Whichever of these motivations drives the decision to liquidate a solvent company, directors will benefit from tax advantages when they choose the MVL process. This is because any profits extracted from the business and its assets will be deemed as Capital Gains and therefore be taxed under Capital Gains tax rates rather than income tax rates. Furthermore, solvent businesses choosing to liquidate can also benefit from Business Asset Disposal Relief which reduces the Capital Gains Tax to just 10%. A licensed insolvency practitioner should be able to talk directors through this and the rates applicable to them. 

Start The MVL Process Today

If you want to embark on the solvent liquidation process, you can do so right away by getting in touch with the expert team here at My Liquidation. The first step in the MVL process should always be to speak to a licensed insolvency practitioner to get a complete understanding of your options and their suitability, and our experts can help with this. 

Should you decide that liquidating your solvent company is the best next step, we can then guide you through the process and help you on your way towards closing your company in a tax-efficient manner. Contact us today for clear and transparent advice about liquidating a solvent company. 

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