In an insolvent situation, other than where it is only the directors or shareholders themselves who will go unpaid (by their mutual agreement) and all outsiders are paid, it will usually be necessary to use a liquidation process to bring the company to an end. Such an insolvent liquidation could be a compulsory one (where a creditor applies to the court for a company to be wound up and the matter is dealt with either by the Official Receiver or by an insolvency practitioner) or could be a voluntary one (where the company itself decides to take that course of action and this is dealt with by an insolvency practitioner).

But even if the company is solvent, liquidation is still an option. In such cases it will be known as a Members Voluntary Liquidation. The alternative in a solvent situation for fairly simple cases is to use the option to have the company struck off without the costs and formalities of the liquidation process. So what are the main differences?

MVL:

Unlike an insolvent liquidation, and MVL can often be completed within a matter of weeks and need not be too expensive although it will cost rather more then the £10 fee associated with a simple application to strike-off. Although the process is managed by a licenced insolvency practitioner, the shareholders retain a degree of control over events. Large assets values can pass back to the shareholders as capital gains which may be advantageous (tax rate less than income tax rates). It may be possible to spread the capital distributions over two tax years to take advantage of a double shot of the annual CGT exemption. The insolvency practitioner takes over from the directors and is responsible for all matters in the process, including notifying all relevant parties, and will ultimately have the company dissolved.

Striking -off:

This route is available to private companies only, a plc cannot do this. It is very inexpensive - the application costs just £10 although there are likely to be other professional fees (usually the accountant) associated with the process but given that this route is for the simpler of cases there ought not to be a huge cost. Full control of the process is retained by the directors. Distributions of up to £25,000 are taxed as capital receipts (CGT) (note that with an MVL as above there is no such limit). The process cannot begin unless the company has ceased to trade for at least 3 months (no such restriction applies to an MVL). Any assets remaining as company property at the time of dissolution become Crown property. The process is that The Registrar of Companies will publish a notice in the London Gazette advertising the proposed striking off and inviting objections. In the absence of objections or withdrawal of the application, the Registrar will strike the company off the register not less than three months after the date of the notice. The company is dissolved when the Registrar publishes a notice to that effect in the Gazette.

Even after being struck off, the liability of directors and members continues as if the company had not been dissolved. Any aggrieved party may, within twenty years of the striking off, apply to the court for the company to be restored to the register. If this happens, any further dissolution has to be by formal winding-up in liquidation

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Liquidation or strike off?