Members Voluntary Liquidation / Solvent Liquidations – some tips from Smart Business Recovery

If you are looking to retire and exit from your business, then the best solution is to sell your business. For many smaller SMEs this may not be possible and so the next best option is to wind down your business and exit via a solvent liquidation, commonly allowing the shareholders to claim Business Asset Disposal Relief (previously called Entrepreneurs Relief).

This is a guest blog post by Gavin Bates an Insolvency Practitioner and director of Smart Business Recovery.

From an Insolvency Practitioner’s point of view the best solvent liquidations are those where the business has ceased to trade, all assets have been realised and all liabilities have been paid. From the directors and shareholders point of view this is also the best solution as it reduces the professional costs if the work is done by them.

What is a Solvent Liquidation?

A solvent liquidation (or sometimes called a Members’ Voluntary Liquidation or MVL) is a process to return the surplus funds to the shareholders in a tax efficient way.

The process is straightforward, but you will need to appoint an insolvency practitioner. 

In simple terms you hold a directors meeting to agree that the company should close and call a meeting of shareholders.  The directors will also need to sign a declaration of solvency with a solicitor like Steven. The next stage is to hold a shareholders meeting to appoint the liquidator. In most cases where the directors and shareholders are the same the meeting can be held on the same day.

The Liquidator must advertise his appointment in the London Gazette and obtain clearance with HMRC as well as distributing funds to shareholders. 

Top Tips for doing a Members Voluntary Liquidation

So whilst the above explains the process, I thought it would be useful to look at some the issues that need to be addressed before appointing an insolvency practitioner. There are many but below are my top 4.

1. Employees – Dealing with employees can be very difficult. Therefore, you need to understand what is in the employees’ contract of employment and what the employees’ rights are. Obviously from a financial point of view you will also need to calculate their redundancy claims and ensure that you follow the process. If in doubt this may be the area where you should take advice. There is one simple reason why, if you get it wrong the cost of claims can be high. 
2. Property leases – There are 2 main issues: when does your lease come to an end and does it have dilapidations clauses which may come back to haunt you. I have seen many cases where directors have received a dilapidation claim not only in the thousands but the ‘tens of thousands’ so please review your lease to see what you have signed up to.
3. Bringing financial obligations to an end – I will often talk to directors, and they will confirm quite rightly that there are no finance, HP, or lease agreements in place. However, when we dig a bit deeper there are financial contracts that need to be concluded. For example, your telephones are most likely on a 12- or 18-month contract so if you finish early a termination charge will apply. In simple terms I say to people look at anything you pay for on a direct debit or monthly basis as it most likely that you signed some form of contract or agreement originally and so you need to understand how to exit these arrangements.
4. Customers – This may seem like the least of your concerns. Surely, once you have closed, the customers will go elsewhere and of course you are correct, they will. But, have you offered any kind of guarantee or warranty? If you offered a professional service, do you need some form of run off insurance?

Obviously, there are many things to consider and perhaps the most complex area is the order in which to deal with them. I often find it is easier to have a set end date and work backwards from there. This will give you a timeline of what to do and when. Most importantly, if in doubt, take advice. Whether that is from your solicitor, accountant, or insolvency practitioner, we are all here to help.