Purnells
Corporate and Personal Recovery
Search     Go
Member Voluntary Liquidations (MVL)
Back
Credit Card

Would you like to know more?

 

If you want FREE advice on any Members Voluntary Liquidation matter and how to extract money from your company risk free please contact Ray Purnell.

Your First Name:


Your Email Address:


Telephone Number:


Our No Spam Policy

Possible Alternative Approaches to an MVL - A case study - The dangers inherent in the Extra Statutory Tax Concession

 

 

Getting money out of your company with no risk of any part being later clawed back. This page considers the advantages and disadvantages of a Members Voluntary Liquidation in comparison with the possible alternative of using the Extra Statutory Tax concession to make a capital distribution.

 

Illustrative fictional Case Study - Seablue (Exeter) Limited

 

Seablue (Exeter)  Limited which has paid up share capital of only £2 has ceased to trade. The director of the company John Jones is also the sole shareholder. To avoid the costs of a liquidator in an MVL John decides to bring the life of the company to an end by following a procedure similar to that outlined below.

 

  • Firstly, John takes tax advice from his advisers as to his proposed course of action.

 

  • John sells all the assets, pays the creditors and is left with a sum of £100,000.

 

  • John obtains a tax clearance that if he returns £99,998 (less the £2 share capital) the Inspector of Taxes will treat the distribution as a capital dividend.

 

  • John pays himself the £99,998 and pays the £2 share capital to the treasury solicitor (share capital cannot be returned to shareholders without a formal liquidation)

 

Comment

If the share capital in the above company had been £5,000 or more a members voluntary liquidation would have been the most cost effective route to follow. The reason for this is that if the liquidation route is not followed the amount of the share capital itself cannot be returned to the shareholders. It has to be paid to the treasury.

 

In appropriate cases there is a further alternative of avoiding this loss of share capital. That relates to using the "reduction of capital" provisions in the "Companies Act".

 

There is a material danger in following the illustrative route which involves the later striking off the company from the register at Companies House under Section 1003 of The Companes Act 2006. That danger is caused by the fact that as no MVL took place the company could be reinstated to the register then wound up by a creditor.

 

Purnells acted for a company where the director wanted to apply for strike off and return to shareholders £2 million pound. Purnells advised the directors not to do that but instead place the company into members voluntary liquidation. That was just as well as after Purnells had distributed the £2 million to the shareholder a contingent creditor raised his ugly head. That creditor had an asbrestos claim for over £1million. If the company had not been placed into a MVL the shareholder would have been £1 million worse off.

 

To establish the most cost effective & risk free route for getting more money out of your company you need free advice to understand the options of Members Voluntary Liquidation or Capital Distributions made under an Extra Statutory Tax Concession.