Solvent liquidations, also known as members voluntary liquidations, refer to the process by which a solvent company chooses to wind up its affairs and distribute its assets among its shareholders. Unlike insolvent liquidations forced by insolvency where the company has run out of cashflow/money, solvent liquidations occur when a company’s directors and shareholders decide that it’s in the best interest of the company to cease operations and distribute its assets to the shareholders in a tax efficient way.
This process involves appointing a liquidator, who is responsible for realising the company’s assets, settling any outstanding liabilities, and distributing any remaining funds to shareholders according to their entitlements. Solvent liquidations are often initiated for various reasons, such as the retirement of the directors/shareholders, the fulfilment of a company’s objectives, or the desire to streamline operations.
One significant advantage of solvent liquidations is that they allow shareholders to benefit from Business Asset Disposal Relief, otherwise known as entrepreneurs relief, receiving distributions of surplus funds or assets for as little as 10%.
Overall, solvent liquidations offer a controlled and structured approach for companies to bring their operations to an end while maximizing value for stakeholders. However, it’s essential for companies considering this route to seek professional advice to ensure compliance with legal requirements and maximise the benefits of the process.
