"Liquidation" is Not a Dirty Word
Posted on 14 April 2015
Liquidation [lik-wi-dey-shuh n] n. The process of terminating the affairs of a business by realising its assets to discharge its liabilities…
…a very exact definition of a perfectly reasonable business activity. For some reason the word has developed such a close association with business failure that even Wiktionary uses the example “The store is having a liquidation sale, everything must go as they go out of business” to show the context of its use. However if you precede the word with “Member’s Voluntary…” you have a very different term and one which can provide substantial benefits to your clients.
A Member’s Voluntary Liquidation (MVL) is a highly effective way of closing a solvent business, providing significant advantages in respect of the capital that can be extracted, the speed it can be implemented and the minimisation of liabilities to the Directors in the future.
Many of you will have clients with limited companies that require closure for reasons such as:
- Shareholders wishing to retire
- Businesses with no succession plan (e.g.no family member to take over the business)
- Simplification of group company structure
- Business that is no longer required (e.g. business set up for the duration of a building project)
- Deterioration in the relationship between stakeholders
If they are not aware of MVLs and the advantages they offer, they will be assessing potential sale opportunities or how they can close it down in an orderly manner for minimum cost and disruption. This presents difficulties financially, operationally and legislatively – immediately and in the future.
Traditionally Directors take salaries or dividends to extract funds, which both attract income tax. An MVL or “solvent winding-up” can be used to enable cash or assets to be extracted as a capital distribution, which usually qualify for CGT and entrepreneurs’ relief, substantially reducing individual tax bills.
MVLs can only be undertaken by licenced Insolvency Practitioners and in this respect Byrne Associates have been able to been able to assist many Directors benefit from this approach:
- When the landlord of a care home requested the return of the trading premises, Byrne Associates not only helped the Directors extract capital efficiently, the resultant MVL also required them to oversee the rehousing of residents, management of staff and sale of fixtures and fittings.
- When a senior partner of an accountancy practice was bought out by his junior partner he was left with £750k in his company bank account. The resultant MVL reduced his tax liabilities by over £200k and protected him from future liability.
- A Director no longer wished to provide services through his legal advice business. A simple strike off would have allowed potential future claims arising from previous advice to be bought against the old company. The MVL protected the Directors from such action and was implemented in just six months.
Clearly where there are existing claims in a business then the MVL is not a tool to ‘get rid’ of these and the tax savings depend on individual circumstances.
Why Byrne Associates?
Byrne Associates are a family run practice, established in 1992. Over 75% of our work is in business restructuring and solvent liquidations. In 23 years we have assisted hundreds of businesses, many of which have been repeat customers who value our efficiency and integrity.
If you would like to know more about how the MVL procedure would benefit your clients, please contact our Licensed Insolvency Practitioners on 01275 464 038 or directly by email, Alison Byrne or Ruth Gilbert.
It is important to take early advice - whilst all options are still open. The longer matters are left, the less control you will have over the outcome, and the harder it becomes to save a business
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