A company can be regarded as solvent when it is able to pay all liabilities in full, as well as statutory interest and any costs involved with the winding
up procedure, within 12 months from the Declaration of Solvency.
Why would a company choose solvent liquidation?
Generally, MVL is a tax efficient process for shareholders of a company to realise their investment i.e. the company’s assets, via a capital distribution.
Subject to meeting certain criteria, the shareholders may qualify for Entrepreneurs Relief, therefore their returns are subject to tax at a much lower
rate than usual. In most instances, the company will have ceased trading and all creditors / liabilities will have been settled, all or most physical
assets will have been sold, with the company’s only asset therefore being made up of cash at bank. Should there be remaining assets to realise then
they can be dealt with through the liquidation process, either by the liquidator taking steps to sell the asset or alternatively, by undertaking the
Distribution in Specie procedure – which is essentially distributing the asset to the shareholders in lieu of its cash value.