Distribution In Specie

A distribution in specie allows a company to transfer assets in their current form rather than selling them and distributing the cash. It is commonly used during a Members’ Voluntary Liquidation (MVL) where it offers a practical and efficient way to distribute value to shareholders.

At Frost Group, we use a distribution in specie as part of our Bronze MVL service and also our Silver Service MVL’s, where appropriate. This can help reduce unnecessary costs while allowing shareholders to hold their funds instead of transferring them to our client account.

What Is a Distribution in Specie?

The term “in specie” means an asset is transferred in its actual form rather than being sold first. Instead of selling an asset and distributing the disposal proceeds as cash, ownership is transferred directly to the recipient.

A distribution in specie can include a range of business assets, including physical assets such as:

• Property or land.
• Shares and stocks.
• Equipment or machinery.
• Other non-cash assets.

This approach can be useful where selling an asset is unnecessary or where shareholders would prefer to receive it directly. It can also simplify the transfer process and avoid the time and costs involved in selling assets before making a distribution.

Why Companies Use Distributions in Specie During an MVL?

A distribution in specie can be an effective way to distribute assets during a Members’ Voluntary Liquidation. Rather than transferring cash into a client account before it is paid back to shareholders, the assets are transferred directly where appropriate.

As part of our Bronze MVL service, Frost Group may use a distribution in specie to help reduce unnecessary costs. Shareholders withdraw the available cash before the liquidation begins, creating a shareholder loan. Once the Liquidator is appointed, a forgiveness of debt document is used to write off the amount owed to the company.

This means shareholders keep the funds in their own bank account rather than transferring them to ours before receiving them back. It can reduce cash handling costs while still following the correct legal process.

Every specie distribution is considered on its own merits, and our team will explain whether this option is appropriate for your company’s circumstances.

How a Distribution in Specie Works?

Although every case is different, a distribution in specie usually follows these steps:

1. A licensed Insolvency Practitioner reviews the company and confirms a distribution in specie is appropriate.
2. The company pays any outstanding liabilities and professional fees and any other legal obligations before the transfer takes place.
3. The assets or cash are transferred in accordance with the agreed process.
4. The directors make a declaration of solvency before the liquidation begins.
5. The Liquidator completes the distribution and finalises the Members’ Voluntary Liquidation.

Throughout the process, the assets are carefully assessed to ensure the correct market value is used where required. Frost Group will guide you through each stage. Please note Frost Group are not tax advisors and are unable to provide tax advice. We can refer clients to our nominated tax specialist who will explain any legal or tax implications before the transfer takes place.

Usually a distribution in specie allows a 100% capital distribution on the date of liquidation (subject to an indemnity). We will instruct (a few days prior to placing the company into liquidation) for the transfer of money in the company’s bank account to shareholders in line with their shareholding. This will allow shareholders to have sight of their money throughout the process and alleviate stress and worry.

What Assets Can Be Distributed in Specie?

A distribution in specie is not limited to one type of asset. Depending on the company’s circumstances, a range of assets may be transferred directly to shareholders.

These can include:

• Cash balances.
• Property and land.
• Shares and stocks.
• Business equipment or machinery.
• Other investments or business assets.

Every transfer should be valued correctly and completed in accordance with the relevant legal and tax requirements. Frost Group can advise whether a distribution in specie is suitable for your business and the assets involved.

Tax Implications, Section 455 and Business Asset Disposal Relief

The tax consequences of a distribution in specie depend on the type and market value of the assets being transferred. In some cases, a transfer may give rise to Corporation Tax or chargeable gains, so it is important to understand the position before proceeding.

Where assets are transferred, they are generally treated as being disposed of at market value for tax purposes rather than their book value. The exact treatment will depend on the nature of the asset and the circumstances of the transaction.The exact treatment will depend on the nature of the asset and the circumstances of the transaction. In some cases, group relief or other tax provisions may also need to be considered.

If a company has an overdrawn director’s loan account, Section 455 may also need to be considered. For this reason, Frost Group does not use a distribution in specie within its Bronze MVL service where the company making the distribution could become liable for a Section 455 charge.

Business Asset Disposal Relief may also be available where the qualifying conditions are met. We recommend speaking with your accountant or tax adviser before proceeding, and our team can work alongside them throughout the process.

Why Choose Frost Group?

At Frost Group, our licensed Insolvency Practitioners provide clear, practical advice tailored to your circumstances. We have extensive experience managing Members’ Voluntary Liquidations and using distributions in specie where they are appropriate.

If you would like to discuss your options, get in touch with our team today. Call us on 0345 260 0101 or complete our online enquiry form to speak with one of our experts.