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Strike Off vs MVL for Closing Down a Company

Reviewed: 29th March 2016

If you’re thinking of retiring or have no further use for your business, as long as it is solvent there are two ways in which it can be closed down. Voluntarily striking-off your company from the register at Companies House is a cost-effective option, but has strict eligibility criteria.

Members’ Voluntary Liquidation (MVL) is the second method, which has to be administered by a licensed insolvency practitioner. Which one you choose depends on your objectives and individual circumstances, and to help in this respect we’ve identified the main areas you need to consider, as well as some of the differences and merits of each route.

Eligibility and legal risks for directors

Company strike-off

During three months before striking-off, the company must not trade, dispose of stock or assets, or change its name. There must not be any insolvency procedures or threats of legal action in existence, or pending, against the company.

Directors have to inform members, employees and creditors about the strike-off. If this isn’t done correctly, there’s a chance that you’ll distribute the funds unlawfully.

MVL

Members’ Voluntary Liquidation requires a Declaration of Solvency to be signed by a majority of directors, confirming the company’s ability to pay all its liabilities within a maximum period of 12 months. You’ll also need to appoint a liquidator to administer the process.

Although directors have to sign the declaration, the involvement of an insolvency professional provides reassurance that statutory procedures are being followed.

Risk of personal liability

Company strike-off

If a creditor hasn’t been informed about the company’s closure and later makes a claim, or if any other irregularities come to light, your conduct as a director will be investigated. You could become liable for company debt, receive a financial penalty or disqualification as a director, or even a prison sentence in the more serious cases.

MVL

There’s also a potential for personal liability with the MVL route. By signing a Declaration of Solvency you could be held responsible for company liabilities if it later emerges that the company did indeed have debts. In these cases, the penalties mentioned above could also apply.

Cost

Company strike-off

The cost of a voluntary strike-off is much less than an MVL, but the benefits of this will need to be compared with the legal and financial risks for directors, in some cases. A voluntary strike-off may be the best option for dormant companies with no assets, or for sole directors approaching retirement, as on cost terms alone it’s an effective way to close down.

MVL

The costs for this option will be considerably higher, partly due to the insolvency practitioner’s fees, but again, the benefits of taking this route could outweigh the extra cost. You’ll have greater reassurance that the legal requirements are being met, which lowers your own risk.

Real Business Rescue offers professional guidance for company directors, and can help you decide on the best option for closing your business. Our advice is independent, fully confidential, and we operate from 55 offices around the UK.

Of course, one of the main considerations for anyone closing down a company is their own tax position. We can help you identify which option is better from a tax perspective, ensuring that funds are received in the most tax-efficient way, and that your investment is maximised.

Real Business Rescue offers unbiased advice to businesses around the country. Call our expert team to discuss your objectives, and ensure that you make the right decision.


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