Are Members’ Voluntary Liquidations (MVLs) under attack again?

A couple of years ago, the Finance Act 2016 introduced a new anti-avoidance rule which targeted MVLs to counter ‘phoenixism’ – starting a new business soon after winding up the previous one. This was to stop what was seen as an abuse of Entrepreneurs’ Relief.

More recently we have seen HMRC now demand statutory interest on tax liabilities from the date of the solvent liquidation even though, in the case of Corporation Tax, these tax liabilities are not technically due until 9 months later.

The latest attack is that HMRC are running a test case to challenge the approach of distributing overdrawn directors’ loan accounts in specie and reclassify the distribution as income, rather than capital, and therefore claim more tax.

It has been common practice to distribute overdrawn directors’ loan accounts in specie to save the directors having to repay the loans back to the liquidator and then wait for a distribution back to them as shareholders.  In the vast majority of cases the director and shareholder are the same person or husband and wife.

It is also our experience when the Company is brought to an end that directors will dip into Company funds before appointing a liquidator, thereby leading to an overdrawn director’s loan account.

We have spoken to both tax advisors and compliance firms within the insolvency world and currently what is certain is that there is uncertainty. However what is certain is that Schedule 11 of the Finance (No 2) Act 2017 seems to put an end to the approach going forward where the loan is not repaid before 5 April 2019.

As always as with any MVL it is now more important than ever to meet with your accountant and an insolvency practitioner before you bring the Company to a close to avoid any of the common pitfalls.

As always, PBC offers free initial meetings which are confidential and impartial.

Statutory Interest on Corporation Tax in Solvent Liquidations

This blog is for accountants, tax advisors and directors who are considering a solvent liquidation, commonly referred to as a Members’ Voluntary Liquidation or MVL.

During the course of 2017 we have been informed of what appears to be a change of policy by HMRC in respect of statutory interest on Corporation Tax. HMRC now require the payment of statutory interest at 8% from the commencement of the liquidation on any CT that falls due for payment after that date, even if the normal due date for payment of the tax is not until after the commencement of the liquidation, and payment is made before the normal due date.

HMRC are relying on a decision in one of the Lehman’s cases for this change in policy. That case indicated that statutory interest was due on both future debts and contingent debts, and since CT payable on a normal due date after the commencement of a liquidation is a future debt then statutory interest falls due. Whilst that judgement related to an administration, HMRC are arguing that in view of the similarity in wording in the legislation it applies equally to liquidations.  The standard letter that they are sending to liquidators with demand for statutory interest says:

“Our understanding of the correct treatment of statutory interest derives from the decision of David Richards J in Re Lehman Brothers International (Europe) : Lomas v Burlington Loan Management Limited. In a supplemental decision he restates his conclusion that “interest under Rule 2.88 (statutory interest) is payable on future debts and on the amount admitted to proof in respect of contingent debts from the date on which the administration commenced”.

Rule 2.88 mirrors Rules 14.23 which applies to a winding up. We are also assuming that will also apply to others taxes, VAT, PAYE and NIC etc.

To make matter worse it is clear that HMRC themselves don’t understand or haven’t been made aware of the change of policy and so we are aware of cases where we have paid the statutory interest and it has been paid back to us. The current advice is to pay the CT to the normal office but send the statutory interest to HMRC’s MVL team!

Therefore if you are considering a solvent liquidation further planning will be required to calculate and more importantly pay any tax debts at the commencement of the liquidation or as soon as possible thereafter in order to minimise statutory interest.

Gavin Bates specialises in solvent liquidations, commenting on the change Gavin said:

“This is effectively a hidden tax on entrepreneurs since HMRC are receiving interest that would not be due other than for the decision to cease trading to permit the members to extract their capital from the company. I also find it very unfair that we have no notice of this change of policy.  I often sit with directors many months before my appointment as liquidator in order to plan the process so we will now need to calculate and pay the tax debts as well as many other factors which we work through”

If you wish to discuss this further please feel free to contact us for an initial free meeting which are confidential and impartial.

Solvent Liquidation – What is it and who can use it?

We are often asked ‘what is solvent liquidation’ and ‘is it suitable for me’? In this video, Gavin Bates, one of our licensed insolvency practitioners explains the meaning of solvent liquidation and gives some clear examples of when it can be used, what it is used for and what you can expect should you decide it is for you.

Solvent liquidation is not suitable if you are in difficulties financially. Please see our other videos for solutions to financial problems.

Be pro-active or accept your fate?

Apart from the obvious frustration, what steps do you take upon receiving the news one of your customers has gone into an insolvency process?  You may have retention of title on stock, it may be a debt write off that is business-threatening to you.


For 30 years The Insolvency Act 1986 has been the basis for all insolvencies in England and Wales, subject to various amendments through statute or legal interpretations. However, 6 April 2017 saw the most fundamental change in legislation with The Insolvency (England & Wales) Rules 2016 (“The Rules”) coming into force.


Most of the Rules are a consolidation of provisions that were considered to be similar for each insolvency type within The Insolvency Rules 1986.  Other changes are an attempt to “modernise”, such as the ability to communicate through electronic means or, simply via a website.  Other changes are more fundamental on a practical level.


From hereon there will no longer be any physical creditor meetings, unless a requisite majority of creditors demand one. Instead we have electronic voting, virtual meetings, resolutions by correspondence and a process known as “Deemed consent”.  The deemed consent procedure could mean notices are sent to creditors on one day and 7 days later a liquidator is appointed with creditors getting only a few days’ warning.  So, what if you believe the conduct of directors has been questionable?  Physical meetings have been a forum for posing relevant questions so, if you believe there is good cause for challenging the directors you must provide a written request for a physical meeting in a very short space of time.  The burden to act quickly really does fall squarely upon your shoulders!  Further information can be found here.


The Rules also place the onus upon creditors to monitor for progress reports.  In the past an insolvency practitioner would send notice stating the progress report can be accessed on a specific website, providing you with the file name and password.  That has ceased and it is now up to the creditor to monitor when the reports will be available.  In theory, that is fine but a liquidator has two months after each anniversary to submit a progress report.  What is the creditor supposed to do?  Check every day until it is there?


For me, the Rules impose a burden on advisors, credit controllers and the financial institutions to be more aware, act instantly or roll over and let the process take its course. Personally, I am concerned the Government have gone too far and reforms to The Rules will occur but, until that time, creditors need to be proactive.


Should you require any further assistance on The Rules, or any other insolvency-related issue then please contact PBC Business Recovery & Insolvency to discuss and advise on your situation.  Call Gary Pettit or Gavin Bates on 01604 212150 completely confidentially.