Understanding disbursements in a Members’ Voluntary Liquidation
If you choose to close your solvent business via a Members’ Voluntary Liquidation (MVL), something you’re likely to encounter are ‘disbursements’. Disbursements are important as even though they are paid by the liquidator initially, they will eventually be charged back to you and influence the total cost of the liquidation procedure.
That’s why it’s worth knowing what disbursements are, when you must pay them and how much they cost.
What happens during a Members’ Voluntary Liquidation?
Licensed insolvency practitioners appointed – A letter of engagement is signed, formally appointing a licensed insolvency practitioner to act as liquidator and advise you throughout the Members’ Voluntary Liquidation process.
Declaration of solvency signed – The declaration of insolvency is a legal document that must be signed to testify that your business is solvent, and therefore, able to settle liabilities in full within 12 months of the liquidation commencing, including interest, with enough funds remaining.
General meeting of shareholders held – A general meeting is held to allow shareholders to vote in favour or against the Members’ Voluntary Liquidation proposal. If 75% of shareholders vote in favour of the MVL, the insolvency practitioner takes control of the company, and the liquidation process commences.
Company liquidation commences – The company enters Members’ Voluntary Liquidation, the relevant documents are prepared and submitted, and parties are notified, such as HMRC and Companies House. The liquidation is advertised in the Gazette, making it a matter of public record and creditors are invited to submit their claims at this stage.
Funds distributed – Once confirmation is received that the company has no outstanding liabilities, capital distributions are made to shareholders, and the company is closed and removed from the Companies House register after three months.
What is a Members’ Voluntary Liquidation?
A Members’ Voluntary Liquidation (MVL) is a popular way to close a company that can pay all its debts (it’s solvent). It allows the shareholders to release the funds tied up in the company in a tax-efficient way. As it’s a formal legal process, you must appoint a licensed Insolvency Practitioner to liquidate the company on your behalf. As part of that process, they must pay statutory costs known as disbursements.
What is a disbursement in a Members’ Voluntary Liquidation (MVL)?
Disbursements in an MVL are costs your liquidator must pay to a third party in the course of completing their statutory duties. Although the costs are relatively small, the amount you pay can vary between Insolvency Practitioners as some add a mark-up, while others, such as the team at Solvent Liquidation, pass them on at cost. That’s why it’s important to understand what disbursements are and how much you’re paying.
What MVL disbursements do you have to pay?
There are three costs a liquidator typically incurs during the Members’ Voluntary Liquidation procedure that are classed as disbursements. They include:
- Notices advertising the liquidation – As part of the MVL process, the liquidator must place notices in the Gazette to inform company creditors and other interested parties that the company is in solvent liquidation. Each of these adverts attracts a fee of around £120 inclusive of VAT. The three notices are:
- Notice of Resolutions to Wind Up
- Notice of Appointment of Liquidators
- Notice to Creditors of Intended Distribution
- Statutory bond – A statutory bond is required by law and acts as an insurance policy on the company’s funds while they are under the care of the liquidator. It provides reassurance for the directors and protects against malpractice. The fee starts at around £50 and rises to several hundred pounds as the value of the company’s assets increases.
- Search fee – This nominal fee, usually for just a few pounds, may also be charged as a disbursement.
What’s the difference between the liquidator’s fee and disbursements?
If you decide to close your solvent company via liquidation, you must appoint a licensed Insolvency Practitioner to carry out the MVL process. They will charge a fee for their work, which will vary from one provider to the next and depend on the complexity of the liquidation, the number and type of assets (physical assets or cash), and whether there are outstanding debts to settle.
Disbursements, on the other hand, are costs the liquidator must pay to third parties to facilitate the liquidation process and meet their legal requirements. They are separate from the liquidator’s fees and are initially paid by the liquidator, who passes the costs on to the company directors.
When choosing an Insolvency Practitioner to liquidate your solvent company, you should consider the cost of the disbursements alongside the liquidator’s fee. It’s usually advisable to enter into a fixed fee arrangement so you know exactly how much the process will cost before you go ahead.
When do you have to pay MVL disbursements?
There’s usually no requirement to pay for a Members’ Voluntary Liquidation upfront. It’s common for the liquidator to distribute the company’s profits to the shareholders early in the liquidation process but retain a proportion of the funds to cover their fees and pay disbursements. Once they have liquidated the company, they will pay the remaining funds to the shareholders.
How can we help?
At Solvent Liquidation, we offer fixed-fee Members’ Voluntary Liquidations to close your business in a stress-free and tax-efficient way. Please get in touch if you have any questions about MVL fees or disbursements or would like a free, same-day consultation to discuss your needs.
How can Solvent Liquidations help limited company directors?
At Solvent Liquidations, we believe that closing a solvent business should be an expertly managed, stress-free process that guarantees the quick distribution of funds and a tax-efficient exit. Our team of licensed insolvency practitioners and company liquidation specialists are all you need to close a solvent company efficiently and with ease. We are the UK’s number one provider of company liquidation services and are trusted by company directors nationwide.
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