What-is-a-Distribution-in-Specie

What is meant by a distribution in specie in an MVL?

During an MVL, an asset is distributed ‘in specie’ when it’s given to shareholders in its physical form rather than its cash value. For instance, property, vehicles, or stock are directly transferred to shareholders instead of being sold first, with the proceeds then distributed.

 

What does Distribution in Specie mean?

‘In specie’ translates to ‘in its actual form’. It means distributing an asset in its physical form instead of selling it and distributing the proceeds. This method is common in solvent liquidation procedures like Members’ Voluntary Liquidations (MVLs).

 

What is a Members’ Voluntary Liquidation?

A Members’ Voluntary Liquidation is a formal procedure for winding up a solvent company. In this process, the company’s assets are realised, liabilities settled, and any remaining funds distributed among shareholders. An MVL must be handled by a licensed insolvency practitioner and is only appropriate for solvent companies, meaning their assets exceed their liabilities.

 

Distributions in specie and solvent liquidations

Rather than receiving cash, shareholders can receive alternative assets through a distribution in specie. These assets can be either physical or financial. Physical assets may include land, machinery, or stock, while financial assets could be bonds, warrants, and shares.

 

Overdrawn director’s loan accounts

An instance where a distribution in specie is commonly used is with director’s loan accounts. If your company has an overdrawn director’s loan account (DLA), it’s often distributed as an asset of the company even if it’s not repaid before the MVL.

The reason is that the DLA is an asset of the company, which will be distributed among shareholders during the MVL. If the director who owes the DLA to the company is also the shareholder receiving it when distributed as an asset, they’re essentially repaying themselves.

However, distributing overdrawn DLAs in specie isn’t just for simplicity’s sake; it also offers significant tax savings for shareholders. Currently, this is classified as capital rather than income, resulting in a lower tax rate.

 

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What is the next step?

If you’re thinking about an MVL for your solvent company, Vanguard Insolvency’s team of licensed insolvency practitioners is here to assist you. We can discuss the advantages and disadvantages of this process and provide advice on the most tax-efficient way to close your solvent company. With 100 offices spanning from Inverness to Exeter, Vanguard Insolvency can provide exceptional director advice nationwide. Contact our advisers today to schedule a free, no-obligation consultation.

Senior Partner at Vanguard Insolvency Practitioners | Website | + posts

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.