By Lauren Auburn
BRI Business Recovery
AFTER very lengthy negotiations you have finally signed the sale agreement agreeing to sell your business and are now either left with a pot of cash or a combination of cash, future earn-out payments and/or deferred consideration that is due.
Some consider that the signing of the sale agreement is the end. However, that may not be the case if plans have not been made in respect of extracting the sale proceeds for the benefit of the company's shareholders. For some, the most tax efficient way to extract the proceeds is to use a solvent members' voluntary liquidation (MVL)
Most of the shareholders we advise in relation to an MVL already have a plan to use the sale proceeds, whether it be for retirement, a property purchase or a new venture but most, if not all, do want their money out of the company sooner rather than later.
Therefore, if you are selling your business some of the points to consider if you would like to extract the proceeds quickly following it being sold are:
* Does the sale agreement contain an insolvency clause preventing an MVL for a period of time? If so, this could delay the MVL process if the purchaser is not willing to re-negotiate this clause. This could affect an individual's ability to claim entrepreneur's relief (ER). A professional tax adviser can offer advice on this point.
* Is there a warranty period? If so, the warranty period could affect the level of funds that can be distributed from the MVL to shareholders immediately.
* If there is an earn out period or any deferred consideration, will it affect the individual shareholders' ability to qualify for ER if an MVL cannot be commenced until all payments have been received?
* Are any earn-out payments and/or deferred consideration guaranteed by the purchaser? Guarantees are generally non-transferable so if the purchaser has guaranteed the company in liquidation, how long will the liquidation need to remain open to protect the guarantee? Is there an option when negotiating terms to include a provision to assign guarantees to the individual shareholders in preparation for an MVL? The longer an MVL has to be administered by a liquidator, the more it will cost.
The above list is not exhaustive, each case is different and the devil is very much in the detail. Therefore, it is always advisable to consult with professional advisers throughout the sale process. Careful planning of an MVL process is always best.
For further advice on this point, or MVLs in general, contact any one of the management team at BRI Business Recovery and Insolvency on 01604 754352.