Member’s Voluntary Liquidation Timeline – How Long Does An MVL Take?
The purpose of a member’s voluntary liquidation (MVL) is twofold; (1) to facilitate the orderly winding down and closure of a solvent company, and (2) to enable shareholders to extract their hard-earned funds in the most tax-efficient way. The other way to close a solvent company is to apply for it to be struck off at Companies House, and you can see the difference between the two Please see our previous article, ‘MVL Vs Strike Off – Which is Better for Solvent Companies?‘
Extracting company funds through a members voluntary liquidation process is often more tax-efficient as shareholders can apply Business Asset Disposal Relief (formerly known as ‘Entrepreneurs Relief’) on any funds distributed by the Insolvency Practitioner. For more information on this, give our guide to claiming Business Asset Disposal Relief/Entrepreneurs Relief in an MVL a read.
How Long Does the MVL Process Take?
When the board of directors have made the decision to take steps to place a company into a member’s voluntary liquidation, the first question is often ‘what is the timeline for the voluntary liquidation process?’
At My Liquidation, we recognise that this is one question that actually has three answers. Why? Because these three questions naturally follow on from it:
- How long will it take to get my company into liquidation?
- When can we expect the funds to be paid to shareholders?
- When will the liquidation eventually finish and the company be dissolved?
How Long Does it Take to Get a Company into MVL?
The actual process of placing a company into MVL can be swift, especially if the directors are also the shareholders and/or all shareholders are happy to hold the necessary meeting at short notice.
At My Liquidation, we pride ourselves on providing our clients with a fast yet reliable service and have successfully placed companies into a members voluntary liquidation with as little as 24 hours’ notice. The member’s voluntary liquidation timeline is not to be confused with that of a creditor’s voluntary liquidation (CVL), which takes longer due to various statutory notices that must be provided to creditors.
Notwithstanding how quickly we can get your company into liquidation, the key to a successful MVL is planning. During your initial discussion with our licensed insolvency practitioner, you will notice that the focus of the conversation will be on the latest accounting information and tax returns filed. We always aim to work with you and your accountant to ensure that accounts are produced until the cessation of trade, and any corporation tax or other liabilities have been settled before setting a date for the MVL meeting. This will avoid statutory interest accruing on liabilities that remain unpaid at the date of liquidation and enhance the funds available to shareholders.
We will also work with you to ensure PAYE schemes are closed, final VAT returns are completed and any other practical issues are attended to in the pre-liquidation phase. All we ask for is a simple introduction to your accountant.
As soon as all parties are happy that the accounts, tax affairs and any other matters are up to date we will agree on a date for the MVL meeting. Many directors/shareholders opt to hold this meeting remotely (using Zoom for example) for convenience and safety. Historically, a sticking point for the timing of the MVL meeting was the necessity to swear a Declaration of Solvency beforehand in the presence of a solicitor. We believe in making things simple. Accordingly, we will arrange for a solicitor to be available at the same remote meeting to facilitate the swearing process.
So, in summary, we can assist you in placing your company into a members voluntary liquidation process in as little as 24 hours. We would however advise that we work with you and your accountant to ensure that all tax affairs are up to date before proceeding.
When will Funds and Assets be Paid to Shareholders?
As previously mentioned, one of the underlying purposes of placing a company into MVL is to facilitate a distribution of funds to shareholders in the most tax-efficient manner.
Understandably, when a date for the MVL meeting has been set, the shareholders would like to know how long it will take the insolvency practitioner (the Liquidator) to distribute the funds to shareholders.
At My Liquidation, we always aim to distribute the majority of company funds (and assets) to you within the first 24-48 hours of our appointment. This is where the pre-liquidation planning with your accountant is paramount. If the Liquidator can see that all tax affairs have been brought up to date, there is no reason to hold back a large reserve while they wait for HMRC to confirm they have no claim in the proceedings.
Many insolvency practitioners prefer to hold back a % of the company funds or a fixed sum until a response has been received from HMRC (which could take a while – as referred to later). With proper planning, this is entirely unnecessary. At the date of our appointment, we will enter into a Deed of Indemnity with the shareholders which protects the Liquidator in the event an unknown creditor arises. We will agree with the shareholders to withhold a nominal sum of money (which needs to cover the agreed costs of the process and perhaps a small buffer) and distribute the rest of the funds immediately.
There are of course some practical considerations to facilitate an early distribution to shareholders, such as transferring the company bank balance to the Liquidator immediately prior to or upon their appointment so that they have funds to distribute. If the funds remain in the company bank account and it is necessary to write to the bank to request payment, clearly the timing of the payment to shareholders is at the behest of the bank.
There may be other reasons to agree a distribution strategy with the shareholders upon liquidation rather than paying all funds out immediately. This could include a provision for contingent liabilities (that should be disclosed to the insolvency practitioner in the pre liquidation phase) or perhaps simply wishing to split the distribution across two tax years to maximise the annual CGT allowance.
So, how quickly will shareholders be paid in an MVL? … the answer is, how quickly do you want it?! As always the key is in the planning. We are not tax advisers, however, our licensed insolvency practitioner is also a chartered accountant and can work with you to devise a proper strategy to help keep your member’s voluntary liquidation timeline as short as possible.
How Long Does it Take to Finalise the Liquidation?
Unfortunately, this answer to this question is out of our hands, and usually because a Liquidator must wait for HMRC to clear their backlog of cases!
The role of a Liquidator in a basic MVL is to give any potential creditors to the opportunity to lodge claims against the company should they see fit, pay any liabilities (subject to the shareholders agreeing that the liabilities are legitimate), obtain confirmation from HMRC that they have no claim in the liquidation, and then distribute the funds to shareholders.
As demonstrated earlier, we tend to turn this order on its head and distribute to the shareholders first with the comfort that proper planning has been undertaken and an Indemnity has been provided to the Liquidator in any event. Once all funds have been distributed and providing HMRC have given their clearance, the liquidation will be progressed to a conclusion and the company is then dissolved at Companies House.
In our experience, delays in progressing an MVL to a conclusion are typically caused by:
- Outstanding tax returns for the pre-liquidation period not being filed;
- Delays encountered with HMRC;
- Purposely delaying the distribution of funds to stagger two tax years as mention previously;
- More delays with HMRC;
- Dealing with any contingent or unexpected creditor claims that have arisen; and
- Did we mention HMRC?
In all seriousness, 95% of the time the delay in concluding any MVL is that the Liquidator is waiting for HMRC to confirm they have no claim against the company and then HMRC providing clearance that the Liquidator can close the case. The wait can be tedious but unfortunately necessary in order for the Liquidator to provide some assurance to shareholders that their company has been wound up properly.
My Liquidation always aims to conclude a liquidation within 12 months. Providing all tax affairs are up to date there is no reason this can not be achieved, even with HMRC delays! If the liquidation goes on for longer than this we will provide a progress report to the shareholders explaining why this is the case.
Summary Of The Member’s Voluntary Liquidation Timeline
- Getting the company into liquidation – with as little as 24 hours’ notice, but primarily dictated by whether your accounts and tax returns are up to date.
- Distribution to shareholders – the majority of funds and assets within 24-48 hours of our appointment (subject to the availability of funds and any specific requests from shareholders to delay payment)
- Closure of the liquidation – we aim to conclude the liquidation within 12 months, albeit this will rely on a number of factors and most notably HMRC delays.
Why choose My Liquidation?
My Liquidation has a track record of providing simple yet reliable advice to directors and owners contemplating an MVL process. As demonstrated by this article, we are also geared up to move fast!
If you would like more information in respect of the MVL process, please contact us. Alternatively, if you would like to know how much an MVL will cost, please use our online MVL quoting tool.
