Understanding your options for closing down a solvent company
Members’ Voluntary Liquidation, or MVL, is a commonly chosen route for company directors seeking to wind up a solvent business and release its tied-up cash. Engaging in an MVL necessitates the hiring of a licensed insolvency practitioner (IP), thereby incurring professional fees.
On the other hand, company dissolution, also termed strike off, closes the company without requiring an insolvency practitioner’s involvement. Nonetheless, opting for an MVL is often the preferable choice for companies with a substantial sum to distribute among shareholders.
Subtle Consequences of Deregistering Your Company
Delving deeper into the workings of each procedure and their implications for you as a director, the decision between the two processes extends beyond mere cost disparities. Although strike off proves considerably cheaper than an MVL, various other factors warrant consideration. These include the reassurance garnered from involving a licensed professional, the risk of future litigation associated with company dissolution, and the tax treatment of any funds withdrawn from the company before closure.
Therefore, when contemplating between Members’ Voluntary Liquidation and company dissolution for closing your limited company, what factors should you weigh, and which process emerges as the optimal choice?
What are the primary factors to consider when comparing MVL to company dissolution?
As previously highlighted, Members’ Voluntary Liquidation incurs significantly higher expenses due to engaging a licensed insolvency practitioner, responsible for managing and executing the process on your behalf.
In contrast, company dissolution offers more of a self-service approach for winding down a solvent company and can cost as little as £8 if the application is submitted online.
However, there’s another potential cost aspect associated with company dissolution that requires consideration.
Possibility of being reinstated as a limited company
Upon completion of the MVL process, the liquidator directs Companies House to strike off the business from the Register of Companies. With expert oversight, you can rest assured that all statutory obligations are met, eliminating any potential for company reinstatement or creditor claims.
Conversely, with company dissolution, you handle your statutory duties as a director independently, including notifying all creditors without exception of your intention to close the company.
Failure to inform a creditor of this circumstance could result in them applying to reinstate your company up to 20 years later and pursuing legal action to recover their debt. Clearly, this poses potential legal ramifications for you personally, having closed a supposedly solvent company.
Benefits of Members’ Voluntary Liquidation (MVL) in terms of tax incentives
An MVL holds a significant advantage over strike off concerning how funds withdrawn from the company are treated. In a strike off scenario, any funds withdrawn are considered income, subject to corresponding tax rates.
In contrast, during an MVL, all withdrawn funds are regarded as capital gains and taxed accordingly. Moreover, the applicable rate of Capital Gains Tax (CGT) can be reduced by half, from 20% to just 10%, thanks to Business Asset Disposal Relief. This relief allows you to benefit from a halved CGT rate on capital gains, up to a lifetime limit of £1 million.
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What’s the optimal choice for winding down a financially stable company – Members’ Voluntary Liquidation (MVL) or dissolution?
i. Company dissolution
While company dissolution offers certain benefits, it’s crucial not to underestimate the effort required to execute this procedure. Adhering to a strict and formal timeline is essential when dissolving a company, beginning with ceasing trade three months before applying for strike off.
It’s imperative to ensure statutory accounts, returns, and tax payments are all current. Moreover, informing all creditors of your intent to strike off the company is mandatory, and they retain the right to object to your strike-off application.
ii. Members’ Voluntary Liquidation
MVL offers reassurance and peace of mind, as it involves a professional evaluation of your company’s financial standing, with specialists overseeing the process from start to finish.
For further information and advice on determining the most suitable process for your circumstances – whether it’s company dissolution or MVL – please get in touch with one of our partner-led teams at Vanguard Insolvency. With a broad network of offices nationwide, we can provide you with a free same-day consultation.
I am an insolvency professional with a distinguished career specialising in commercial insolvency, adeptly navigating Creditors Voluntary Liquidation, Company Voluntary Arrangements, and Company Administrations. With a comprehensive understanding of insolvency laws and an unwavering commitment to ethical practices.