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IT Consultancy Business enters MVL

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The Company was an IT consultancy business and had traded for around 10 years. The Director was a sole Director and Shareholder.

The Director of the company advised that the company was solvent and had been a very successful company throughout the trading history.

The company had only two creditors, their accountants for accountancy fees and HM Revenue & Customs for Corporation Tax.  The Director advised that the company was solvent and therefore could pay both of these creditors in full.

The assets of the business consisted of approximately £500,000 cash remaining in the company bank account and a small number of office items, namely a computer and office furniture.

The Director wanted to cease to trade the business as the business was coming to a natural end and the Director was looking to retire. The Director, who was also the company’s sole shareholder wanted to extract the funds of £500,000 from the business in the most tax efficient way.

 

The options available to the company were discussed and these consisted of

 

Strike off – The option of writing to Companies House to apply for the company to be struck off was discussed. The company would have to pay the two outstanding creditors in full and distribute the remaining funds by way of shareholder dividend, following which the company could apply for strike off. However, this would not have been the most tax efficient manner to distribute the funds for the shareholders as the rate of income tax payable would have been greater than if the funds were distributed in a Members’ Voluntary Liquidation.

 

Members’ Voluntary Liquidation (MVL) – The option of an MVL was discussed and the Director felt that this would be the best option for the company. This would allow the company to be formally wound up and ensure that all creditors were paid in full through the liquidation process. The Director also sought independent tax advice and was advised that a MVL would be the most tax efficient way of extracting funds of £500,000 from the company as this would be regarded as a capital distribution from the liquidation rather than being taxed as income. As a result the shareholders would qualify for Entrepreneurs Relief on the capital distribution of these funds.

 

Once the director had instructed F A Simms to assist with placing the company into an MVL dates were agreed upon which a Directors Meeting and Shareholders Meeting could be held. As the director was also the sole shareholder it was possible to hold these meetings on the same day.

At these meetings resolutions were passed to place the company into an MVL and appoint the liquidators together with resolutions to empower the liquidators to collect in the company’s assets and distribute them to shareholders once all creditors had been paid in full.

As part of the process of placing the company into an MVL the directors were required to sign and swear a Declaration of Solvency which must be done prior to the Shareholders Meeting. This declaration is a statement of the company’s assets and liabilities and includes a statement that the company can pay all off its liabilities in full within 12 months.

Following appointment, the company’s remaining creditors were repaid in full and the remaining funds; less costs, were distributed to the shareholders. The company’s physical assets were transferred to the shareholder by way of a Distribution in Specie which allows for the distribution of a physical asset by way of capital distribution to the shareholders.

Once all matters were finalised, clearance to close the case was then sought from HM Revenue & Customs and upon receipt of such written confirmation; the case was able to be passed for closure. A final dividend was paid to the shareholders of the residual funds remaining in the Liquidation estate.

A final meeting was held and the appointed Liquidators were released from office. The company was then dissolved at Companies House approximately three months after the final meeting was held.

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