Some business owners may be contemplating a solvent liquidation or MVL prior to the increase in Capital Gain Tax rates (“CGT”) in April 2025.

The recent case of the liquidation of S.A.L. Holdings Limited (“SAL”) highlights some pitfalls to try and avoid at all costs if you are contemplating an MVL.

In May 2018, SAL had entered into a tenancy agreement with Mr Brown, the landlord. The building was a residential property occupied by the company director. It is not clear from the case why SAL entered into the tenancy agreement for the director. SAL entered into a solvent liquidation in June 2021. The company director continued to occupy the property and vacated the property in March 2023. SAL / the director had made substantial alterations to the property in breach of the tenancy agreement and the landlord claimed that the amount of the rectification works amounted to £156,845 plus VAT plus legal costs and loss of income.

The landlord was unaware of the liquidation but in early 2024 submitted a proof of debt in the liquidation for £277,397.

The liquidator had, much earlier in the liquidation, distributed the company’s assets to the shareholder.

The liquidator rejected the landlord’s proof of debt and the landlord brought an application to court to challenge the liquidator’s decision.  

The court allowed the landlord’s proof of debt in the sum of £198,714.

The liquidator’s costs and the landlord’s costs for dealing with the application will be in excess of £50,000. SAL has now been placed into an insolvent liquidation and separate liquidators have been appointed which will incur substantial future costs. The MVL liquidator and shareholder may also have claims issued against them for the loss. 

This case highlights the need for directors to be open and honest with the proposed liquidator and for due diligence to be undertaken prior to the commencement of the liquidation. Directors may often question the need to provide such information but if this due diligence is not undertaken it will often add very substantial costs and delays on to the liquidation if a claim arises. 

It is also imperative that the referring accountant and the business owner discuss and agree with the proposed liquidator a strategy for dealing with claims if they arise during the course of the liquidation. Claims cannot just be rejected and ignored!