An MVL can produce tax savings,
assist with a reorganisation or simply
provide for an orderly closure
of a company

Members Voluntary Liquidation ("MVL")

An MVL is a solvent liquidation where all creditors are paid in full and leads to the dissolution of the company. Even though all creditors are paid only a licensed insolvency practitioner can deal with the liquidation.

When a company has come to end of its useful life an MVL up is often required because:

  • Its business has been closed down or sold and the company is no longer trading,
  • It was used in a particular transaction that has been completed,
  • It holds an asset that would be better held directly by its parent company or shareholder(s), or
  • It was acquired as part of a purchase of a business and is not needed by the current owners,
  • There are taxation advantages.

If the company is not wound up then the directors will continue to have to comply with their duties as directors, including filing accounts, making returns to Companies House, and all other requirements of the Companies Act. Once the company is placed into liquidation the burden on the directors will be lifted and any assets can be returned to the shareholder(s).

Entrepreneurs relief

There can be significant tax savings for shareholders from closing a company using an MVL if Entrepreneurs Relief applies.

Your tax advisor should be able to advise you definitively if an MVL would be tax efficient for your specific situation although we can provide an initial opinion in most cases. If an MVL is the answer we will work alongside your tax advisor during the process. A few criteria need to be met for ER.

Personal company - You need to hold at least 5% of the ordinary share capital, have at least 5% of the voting rights, and be an officer (eg director) or employee of the company.

Trading company - The company should be a genuine entrepreneurial trading concern and cannot have substantial investment activity.

Qualifying period - All the above needs to have applied for a full year. This will either be the year prior to the liquidation commencing, or the year prior to the trade ceasing if trade ceases prior to liquidation. The liquidation can follow up to 3 years from the cessation of trade.


Section 110 Scheme

Under Section 110 of the Insolvency Act 1986 one or more businesses of a company in MVL may be transferred to a new company, or companies, in return for shares in the new companies. The new shares are then distributed to the shareholders of the original company. This allows incompatible businesses or assets to be separated.

The reasons why the different businesses might be separated include;

  • A reorganisation of business activities makes sense for commercial reasons,
  • One business to be sold and another business or none business assets retained,
  • Shareholders decide to go their separate ways.

In addition to the statutory requirements of placing the company into MVL, the section 110 scheme must be approved by a special resolution of the shareholders. Any shareholder who does not approve the section 110 scheme may object to the liquidator within 7 days and require the liquidator to either abstain from carrying the scheme into effect or to purchase his interest in the company. For this reason it is normal for the general meeting to approve the section 110 scheme to be held at least a week before the meeting to approve the liquidation.

Group simplification

Groups often have dormant subsidiaries whose useful life is over and add no further value, often as a result of mergers and acquisitions or transfers of businesses and assets between group companies. Current management may not have any historical knowledge of the company or potential liabilities that could lurk in these companies. So groups should regularly review their structure and remove unwanted companies.

We can review inactive companies and provide recommendations for those that are suitable for winding for by MVL or may be simply struck off. There may be significant cost savings if multiple companies are liquidated together. We can work alongside existing advisors including accountants and corporate solicitors.