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Mike Pavitt | 5th February 2021

Members’ Voluntary Liquidation: Is now the time to extract value from your business?


Mike Pavitt | 5th February 2021

Members’ Voluntary Liquidation: Is now the time to extract value from your business?

At the time of writing (early February 2021), speculation was rife among commentators that on 3 March 2021 the Chancellor, Rishi Sunak, would be using his Budget Speech to announce the end of tax breaks which make a solvent (or to give it its technical name, members’ voluntary) liquidation a particularly cost effective and tax efficient way for business owners to extract value from their business.

We can certainly attest to the fact that our contacts who are licensed insolvency practitioner accountants (IPs) – the only people who can legally conduct a solvent liquidation process in England and Wales – have seen a significant uptick in enquiries since the beginning of the year, which they put down to a combination of:

  1. intended business sales from 2020 being cancelled or delayed in 2020 due to COVID;
  2. business owners running out of patience as to when COVID restrictions might be lifted;
  3. the arrival of new administrative burdens with the IR35 tax regulations in April 2021;
  4. rumours the Chancellor would realign capital gains tax (CGT) rates closer to income tax; and
  5. rumours the Chancellor might abolish the (10%) Entrepreneurs Relief tax rate.

Some commentators even predicted that if the Chancellor were to make the rumoured tax changes on 3 March, they could come into force immediately, well before the end of the current tax year. Whilst the ‘smart money’ might have been against a Tory government upsetting its supporters by not allowing at least 4 weeks’ notice, there is no denying that the Treasury needs all the tax revenues it can get for the foreseeable future and that an immediate change would maximise the available ‘cash grab’. The move would also be supported by an independent report commissioned by the Chancellor in 2020. The refusal of the government – in spite of overwhelming opposition – to delay or reverse the reintroduction of Crown preference in December 2020 demonstrates that they are not afraid to take unpopular measures.

6 most frequently asked questions regarding members voluntary liquidation

Regardless of any actual or threatened changes in the tax regime, however, solvent liquidations have for many decades offered a clear and certain way for business owners to draw a line under their business, resolve creditor claims, and receive a prompt return of the net asset value they have built up in the company without undue fear of anything coming back to bite them in the future; in other words, a clean break. But what does an MVL actually entail, how much should it cost, how quickly can it be done, and how can you be sure you have the right IP for it? Our Corporate Restructuring & Insolvency team has given some thought to these questions and we set out their thoughts below:

When is a members voluntary liquidation appropriate?

Unlike other forms of liquidation, and even though the law on MVLs is mostly found in the Insolvency Act 1986, an MVL actually requires a company to be fully solvent. If it weren’t, there would be no surplus available to distribute. The sum of the company’s asset value must exceed the sum of its liabilities and by and large it must be paying its creditors as they fall due. Value extracted by shareholders through an MVL is taken out as capital rather than income, and if the corresponding tax conditions are met (which, in very broad terms require shareholders to permanently pull out of the business in which the company was interested), a comparatively low rate of tax will apply. The idea of the corresponding tax relief is that capital value extracted in this way is available for investment in different types of project, or for recirculation and spending where it is needed in the economy generally.

An MVL will therefore not be right for everybody, but for shareholders whose companies have built up considerable cash reserves, or who have already sold their business and are waiting only for the money to roll in, and/or shareholders who are contemplating retiring from their current business in the foreseeable future, an MVL would seem an entirely appropriate option. If the tax incentives are falling away over time, this would obviously suggest that there is an opportunity here which might be missed.

The Declaration of Solvency

In order to be able to access an MVL solution, at least one director of the company must be willing to swear (before an independent solicitor, and on pain of serious criminal sanctions if a false statement is made) that all of the debts of the company will be paid within 12 months after the commencement of the MVL. In practice, this is not as onerous as it sounds. Members of our team meet frequently (or in the current lockdown context, video call remotely) with directors who need to make these ‘swears’ and typically a good deal of work will have been undertaken with the nominated IP beforehand to clarify the extent of any debts, ensure that all assets have been sold, and that all known tax and other liabilities have been brought up to date. In this way, the director can confirm this information with confidence.

Distribution and Indemnities

A typical MVL will involve the distribution to shareholders of asset value which is not needed to cover any unpaid liabilities, including any balancing tax liabilities which fall due before tax clearance is obtained. If all assets have yet to be converted to cash, certain assets such as real property, shares, debts payable under contracts (including contracts for sale of the business on deferred payment terms), and securities can be distributed ‘in specie’, i.e. legally assigned to the shareholders.

Shareholders will invariably want to have the cash and any other assets distributed more or less immediately. If this is to happen, the IP liquidator will usually require a written indemnity from the relevant shareholder to guard against the possibility that any assets retained by the liquidator to meet any final liabilities and costs turn out to be of insufficient value to do so. Indemnities can be enforced such that the shareholders have to put some asset value back into the company if necessary and sometimes IPs will want to take security from the shareholders. The precise terms of the indemnity will depend upon the circumstances of the company and of the shareholders, and if in doubt it may be sensible for the shareholders to seek independent legal advice on the terms.

How much should a members voluntary liquidation cost?

The cost of an MVL will be determined primarily by the complexity of the business, the extent to which matters have already been resolved by the directors prior to the resolution to place the company in solvent liquidation, and any other complicating factors. There are one or two IPs who advertise an MVL service costing less than £1,000+VAT. Invariably in our experience these ‘quotes’ are set to draw directors in, whilst the ‘small print’ reveals that the cost will rise sharply if, for example, it is necessary to make more than one distribution. In all events, we suggest that given the importance of getting the MVL right and achieving the finality and clean break the directors and shareholders will usually be seeking, the choice of IP should not be made on the sole basis of price. A good IP will cost the work carefully, and will reassure the stakeholders that they have both the expertise and the resources to see the work through promptly and well.

How quickly can an MVL be put in place?

Provided at least some of the legwork has already been done, including tidying as many finances as possible, resolving any claims or pending litigation, and priming all shareholders to be ready to pass the necessary resolution, an MVL can typically be started very quickly. From first enquiry with an IP, through to letter of engagement, drawing up of board minutes, drafting and swearing of the declaration of solvency and signing the rest of the papers, right the way through to distribution of surplus funds and/or assets in specie to shareholders can take as little as 8 to 10 days.

This means, of course, that if there is concern that a pending tax change could be implemented within a month, there would still in principle be time to get the MVL started and a distribution effected before the tax change takes effect. This assumes that any tax change does not take effect retrospectively and that there is a prompt exchange of information and correspondence. Typically, within 3 to 6 months of the liquidator’s appointment we would expect to see a final or balancing distribution being made in conjunction with the liquidator obtaining tax clearance, which would then allow the liquidation to be closed promptly and the company itself dissolved at Companies House.

How can I be sure I have the right insolvency practitioner?

How a company chooses the IP it wants to work with is of course a personal and/or commercial decision, but we would warn those considering this choice that not all IPs are the same. Whilst you will of course be entitled to expect a minimum level of service, and whilst all licensed IPs will carry bonding and insurance to protect stakeholders, you should consider carefully whether you are prepared to entrust the hard-earned fruits of your labours over many years to someone who may have a glossy website and advertise a fixed fee, but whom you are never likely to meet, and who could be a very small operation which cannot guarantee the resources you need to get your matter over the line within the timeframe you need.


For many business owners, particularly those ready to cash in their chips in a given industry, an MVL will represent an excellent solution. None of us know what changes lie ahead in terms of government business and fiscal policy, but those looking to release cash or assets swiftly and cost effectively should speak to an IP sooner rather than later.

It should be noted that companies who have not yet disposed of their assets and/or who have not yet been fully paid for those assets should not assume that they have to wait before pursuing an MVL. Depending on the structure of the company, it may for example be possible – with a willing buyer in place – to sell the business promptly upon terms which are ‘liquidator friendly’ (i.e. involve few if any warranties by the selling company) and to arrange for the liquidator to assign to one or more shareholders the company’s contractual rights to receive payments and to enforce security. In principle, the failure of a majority shareholder to explore an MVL option at all, or promptly at a time when some of the benefits of doing so may be about to fall away, could be grounds for an unfair prejudice action by a minority shareholder whose net dividends are materially disaffected.

Over an involvement of many years within and around the insolvency profession, Paris Smith LLP’s Corporate Restructuring & Insolvency team have made many hundreds of introductions and/or referrals for current and prospective clients alike. We work regularly with a range of IPs and we know them, their teams and have current information as to their capacity to take on new work. Unlike the many internet tools, agents and intermediaries who advertise solvent liquidation services (which they obviously cannot provide themselves) we are entirely independent of the IPs we refer to, and we pride ourselves on being able to match your needs to the services of an IP who would be right for you, having regard to the complexity of the company and its assets, the number and situation of the shareholders, any preferred budget and communication style. We would be pleased to make a call on your behalf and to effect an introduction as appropriate, or simply to provide you with suitable details so you can pursue your own enquiries, entirely without charge.

If you would like to discuss any aspect of the above, or to arrange a referral to an independent IP, please get in touch with your usual Paris Smith LLP contact, or with any member of our Corporate Restructuring & Insolvency team.

Mike Pavitt is an LLP Partner and Head of Corporate Restructuring & Insolvency at Paris Smith LLP. He has specialised in insolvency matters for more than 20 years and is a former Chair of the Southern Committee of the Association of Business Recovery Professionals (R3). He is also a Fellow of R3 and a current member of the Insolvency Lawyers Association. Paris Smith LLP’s Corporate Restructuring & Insolvency team frequently advise companies, LLPs, directors, partners, secured and unsecured lenders, litigation funders, private individuals and insolvency practitioner accountants in matters relating to actual or prospective insolvency and to insolvency risk.

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