MVL vs Strike Off
Both strike off and MVL are director-initiated proceedings which means they are entered into voluntarily by the company’s directors/shareholders. An MVL, however, can only be entered into under the guidance of a licensed insolvency practitioner once the director has made the decision to close their company via this method. Strike off, on the other hand, does not require the input of a third party and the whole process can be handled by the director themselves from start to finish. The lack of professional fees associated with a strike off makes this option much cheaper when compared to an MVL.
Despite this, it may actually work out more cost-effective to place the company into liquidation if you have in excess of £25,000 to distribute. This is because money taken from a company via an MVL is treated as Capital Gains rather than income; this reduces the tax bill considerably. Directors can also take advantage of Business Asset Disposal Relief as part of an MVL, which halves the payable rate of CGT down to just 10%.
If you are looking at closing a solvent company which has a significant amount of assets to its name, it is vital you understand how liquidation by way of an MVL could result in greater realisations even with the additional cost of entering into the process.
What happens if I discover my company is actually insolvent?
It may come to light during the liquidation process that the company is in fact insolvent. When this happens it is often due to an oversight on the part of the directors whereby an outstanding creditor has not been accounted for, or a contingent creditor claim crystalises. If this happens then the MVL will need to convert to a CVL – the insolvent type of liquidation.
If this happens, then your appointed insolvency practitioner will handle the process of converting from MVL into CVL, ensuring all relevant parties are informed and the necessary documentation is filed with Companies House. Once this has been done, the CVL process will continue as like any other CVL.
Should I close my company or leave it dormant?
Although you may have made the decision to stop trading via your limited company, this does not necessarily mean that you need to close the company down for good. Instead, you may wish to make your company dormant, giving you the option to restart operations at any point in the future while preventing another company incorporating using the same name and thereby protecting your company’s brand and reputation. If you are closing your business due to ill health, travelling, or are in any way unsure as to whether you will need the company again in the future, you may wish to consider dormancy as an option.
While a company is dormant there will be some minimal annual administration duties such as filing dormant company accounts, however, this is usually not particularly onerous. There is no upper time limit on keeping a company dormant which makes this a worthwhile option to consider for directors who are unsure as to where their future lies.