MVL Vs Strike Off – Which Is Better For Solvent Companies?
When a limited company needs to close, for any reason, there are set procedures that must be followed by the board of directors. The option for directors will either be a striking off or a voluntary liquidation pursuant to the Insolvency Act 1986.
In this article, we look at these options in the context of a solvent company, i.e. one that can or has paid its debts and has assets of a value greater than its liabilities. For solvent company directors and owners, they can either opt for striking off the company or a members voluntary liquidation (MVL) process.
What Does ‘Strike-Off’ Mean?
The term ‘strike off’ refers to a company being struck from the register of companies. A company can either be compulsorily struck off, usually as a result of a failure to file accounts or confirmation statements, or voluntarily struck off. In the event of the latter, the directors, secretary or advisor of the company may apply to the Registrar of Companies for their company to be struck off if it is dormant or no longer trading.
The application itself is cheap (£8) and the Registrar will then advertise the intention to strike off the company. If no objections are received within a 3 month period, the company is then dissolved. By comparison, an MVL could take 12 months or longer to conclude depending upon the matters to be addressed by the Liquidator.
What Are The Pre-Conditions For A Strike-Off?
In the context of a solvent company, certain pre-conditions must be met before applying for a strike-off which are set out within sections 1004 and 1005 of the Companies Act 2006. The most common pre-conditions stipulate that the company must not have, within a 3 month period prior to the application:
- traded or otherwise carried on business
- changed its name
- engaged in any other activity except one which is necessary for the purpose of:
- making an application for strike off or deciding whether to do so (for example, seeking professional advice on the application or paying the filing fee for the strike off application)
- concluding the affairs of the company, such as settling trading or business debts
- complying with any statutory requirement
- made a disposal for value of property or rights that, immediately before ceasing to trade or otherwise carry on business, it held for the purpose of disposal for gain in the normal course of trading or otherwise carrying on business
Furthermore, a company is prohibited from applying for a strike off if it is already subject to any insolvency process (such as a voluntary liquidation, administration, company voluntary arrangement(CVA)) or scheme of arrangement.
What Are The Practical Implications Of A Strike Off?
Once a company is dissolved (struck off) it effectively ceases to exist. The directors no longer have any active duties and there are no further statutory filing requirements.
It is important to ensure that all bank accounts are closed and all assets disposed of prior to the date of dissolution. Any cash or assets belonging to the company upon dissolution become bona vacantia (ownerless property) and vest in the Crown.
It is equally important to ensure that all liabilities of the company have been settled. If a creditor has been overlooked, they can apply for the company to be restored to the register which could result in personal implications for the directors. This is a scenario more typically encountered where the directors apply for an insolvent company to be struck off as opposed to placing that company into a creditors’ voluntary liquidation.
As such, those opting to strike off their company should ensure that the process is planned carefully and advice obtained from experts, if necessary. The actual process itself can be implemented online via the government’s website.
Why Should You Consider An MVL?
As demonstrated above, the strike-off process is useful and cost-effective for dormant companies or those which have not traded for a while. However, and despite this, many company owners still choose to close their companies using a members voluntary liquidation process.
The reason for this is generally twofold; either to extract company funds in the most tax-efficient manner and/or to provide some comfort that the affairs of the company have been wound up properly.
To understand why an MVL is commonly the most tax-efficient way to extract funds from a solvent company, please read our detailed article entitled ‘Claiming Entrepreneurs Relief in a Members Voluntary Liquidation’.
Members Voluntary Liquidation Cost
The cost of an MVL is sometimes the deciding factor when directors are contemplating a company strike off. At My Liquidation, our MVL packages usually start at £2,000 plus disbursements and VAT. You can obtain a bespoke quote for your company within 60 seconds by using our online MVL quoting tool.
Whilst we accept that this cost is considerably higher than the £8 fee to apply for a strike-off, we ensure that a high-quality service is provided from start to finish. Furthermore, directors and company owners alike are assured that:
- All assets are disposed of and dealt with appropriately, thus avoiding them being transferred to the Crown
- All of the company’s pre-liquidation tax affairs are finalised with your accountant and confirmation is received from HM Revenue & Customs that they have no claim against the company
- Tax clearance is received before concluding the liquidation along with confirmation that company records may be destroyed after 12 months of the company being dissolved (compare to the 7 year period the records must be maintained is the strike-off route is followed)
- All relevant parties are advised of the winding up of the company’s affairs
- All potential creditor claims (disputed or otherwise) are dealt with by the Liquidator pursuant to insolvency legislation, negating the possibility of an application to restore the company in the future
- All attempts are made to ensure that surplus funds are distributed to shareholders in the most tax-efficient ways
If you would like to understand how to place your company into a members voluntary liquidation, please click here. Alternatively, if you would like to discuss your options in greater detail please contact us. We are here to help!
