Business Finance: Mark Upton explains new laws on voluntary liquidation

Mark Upton of Ensors

Mark Upton of Ensors - Credit: Archant

During last year, legislation came into force which has impacted on companies which are solvent but which, for a variety of reasons, wish to cease trading and return funds to shareholders.

This may be being considered for a number of reasons, for example where the company’s owners wish to retire and there is no successor or where the business and assets of the company have been sold and shareholders wish to extract cash in a tax efficient manner.

Previously, the options available included a formal liquidation or an informal wind down and strike-off. The latter option was available via a concession by HM Revenue & Customs (ESC C16) whereby, subject to certain criteria, the distributions to shareholders were treated as capital distributions rather than income distributions and therefore usually attracted lower rates of tax for the individual shareholder.

However, this option has changed and now only applies where the sums distributed are less than £25,000 and the company complies with other criteria. As a result, it is likely that directors/shareholders who wish to cease trading and take a capital distribution will have to consider a formal solvent liquidation, otherwise known as a members’ voluntary liquidation (MVL). The £25,000 cap means that this will apply to an increasing number of companies such as one man service companies, property companies, single-purpose companies and also as a way to resolve shareholder disputes.

One of the main advantages of an MVL for shareholders is the fact that distributions are treated as capital distributions. This often means for the individual that a lower rate of tax will apply although it is essential to take professional advice on this matter.


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The MVL procedure requires a liquidator to be appointed to oversee the process. They have the advantage of being able to set a last date for any creditors to claim, providing some certainty to the company when it deals with its final account to shareholders. One issue for shareholders will inevitably be the cost of the process but, assuming that the company has organised its affairs such that the only asset left to distribute is cash, the professional costs should not be prohibitive.

The cessation of a solvent company’s business holds important considerations for the directors and shareholders and it is recommended that both the company and the individual shareholders take appropriate professional advice according to their particular situation.

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: : Mark Upton is business recovery partner at Ensors Chartered Accountants.

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