Revenue Engagement in MVLs: Clearance, Audits, and Conversions

Members' Voluntary Liquidations (MVLs) are commonly seen as a tax-effective and straightforward means for solvent companies to distribute surplus assets to shareholders.

For example, where Entrepreneur Relief applies, shareholders may extract value at a Capital Gains Tax rate of 10%, subject to conditions. Yet, beneath this perceived simplicity lies a less visible risk: the potential for Revenue intervention long after the final shareholders' meeting has been held and distributions made. With no statutory requirement for tax clearance, and no formal endpoint to Revenue's audit powers, liquidators must tread carefully.

No Tax Clearance Required — But Risks Remain

There is a common misconception that a formal tax clearance certificate from Revenue is required before a Members' Voluntary Liquidation can be concluded. In fact, under the Companies Act 2014, there is no such obligation. Yet, this absence of a formal clearance mechanism leaves a grey area. Revenue may raise assessments long after distributions have been completed, particularly where Capital Gains Tax (CGT), VAT deregistration, or PAYE reconciliations have not been closely scrutinised.

A frequent challenge is the practical delay: Revenue often takes 12 months or more to respond to clearance requests. In the absence of formal closure, liquidators face the uneasy task of balancing finalisation with prudence.

Revenue's Involvement in MVLs 

Revenue's role in a Members' Voluntary Liquidation (MVL) can vary considerably. While some cases proceed without any engagement, in others—particularly those involving significant asset disposals, group restructures, or historical tax issues—Revenue may take a more active role, including launching a compliance intervention or full audit after liquidation has commenced.

Their typical focus areas include:

  • CGT liabilities on asset transfers

  • VAT issues (e.g. input reclaims, deregistration timing)

  • RCT compliance

  • PAYE reconciliations

Even if the company is dissolved, Revenue can raise assessments retroactively. The problem? The money is gone.

It’s also worth noting that under Section 251 of the Taxes Consolidation Act 1997, tax clearance certificates are generally reserved for public procurement or specific tax incentive claims. Revenue does not operate a statutory clearance system for MVLs, which contributes to the procedural vacuum in this area.

Dealing with Revenue During an MVL

Although not mandatory, best practice is to:

  • Appoint as agent on ROS

  • Engage proactively with Revenue — request a position or raise specific queries

  • Email a formal clearance request (e.g. "Please advise if Revenue intends to raise any liabilities before the company is dissolved")

When Revenue Fails to Respond: Using Silence to Your Advantage

There is a strategic advantage in documenting a non-response from Revenue following a direct and specific query. While it is no substitute for legal certainty, it can support the liquidator's position in several important ways:

Supports Reasonable Reliance and Due Diligence: If a liquidator makes a clear written request to Revenue (e.g. asking whether there are any outstanding tax liabilities prior to distribution), and Revenue does not respond within a reasonable timeframe, this silence can serve as evidence that the liquidator acted prudently and in good faith. Revenue’s own Code of Practice outlines expectations for timely responses, and where they fall outside their own standards, it strengthens the case that the liquidator engaged in fair inquiry, acted responsibly, and relied reasonably on Revenue’s implied position.

  • Creates a Paper Trail of Good Governance: Properly documenting the attempt to engage Revenue — including the date the email was sent, the content of the inquiry, and the period of time waited — provides a paper trail that can be included in the liquidator’s file. This shows good governance and will be valuable if the process is ever scrutinised.

  • Shifts the Risk Narrative: Courts and regulators tend to ask whether a liquidator "knew or ought to have known" about a liability. They also examine whether the liquidator ignored red flags or deliberately avoided inquiry. Documented silence following proactive engagement suggests the opposite: that the liquidator took all reasonable steps. This also supports the defence under Section 682, and can mitigate shareholder clawback risk under Section 604, as the liquidator cannot be said to have knowingly prejudiced creditors.

  • Caveats: Silence is not a guarantee. A non-response does not equal immunity. This approach is best used where there are no outstanding risk indicators — i.e. no open Revenue audits, no unfiled returns, no historic compliance issues. Where red flags do exist, silence from Revenue should not be treated as a green light to proceed with distributions.

When Revenue Raises a Post-Liquidation Liability

If Revenue audits the company after the final distribution and raises a liability, the company often has no remaining assets to pay it. This triggers exposure under:

  • Section 604 Companies Act 2014: Shareholders can be compelled to repay distributions if it prejudiced creditors.

  • Section 682: If a liquidator is found to have acted negligently (e.g. failing to reserve for foreseeable liabilities), they may face personal liability.

A real-world example of this principle can be seen in Re Lo-Line Motors Ltd [1988] BCLC 698, where directors (acting as de facto liquidators) were ordered to repay distributions made without proper provision for outstanding liabilities. While an English case, its reasoning has influenced Irish practice where distributions leave creditors unpaid.

Converting MVL to CVL: The Statutory Safety Valve

Where a liquidator forms the opinion that the company will not be able to pay its debts in full, Section 580(1) requires the MVL to be converted into a Creditors' Voluntary Liquidation (CVL).

This must be done promptly. The liquidator must call a creditors' meeting and prepare a statement of affairs. Once converted, creditors (including Revenue) can formally prove for their debts. This protects the process and reduces personal exposure.

Practical Recommendations

  • Reserve funds: Hold back a reasonable amount for contingent liabilities.

  • Use indemnities: Shareholders should sign a deed of indemnity agreeing to refund part or all of the distribution if liabilities arise later. This can be:

    • Capped to the amount received

    • Time-limited, typically 24 months from final meeting

    • Include enforcement provisions (e.g. jurisdiction clauses, cost recovery, acknowledgement of continuing liability despite dissolution)

  • Document everything: Especially attempts to engage with Revenue, rationale for distributions, and minutes of decision-making. CRO filings should reflect an awareness of contingent risk and mitigation steps.

Conclusion

MVLs remain an effective tool, but their clean simplicity can be illusory. Revenue’s audit powers, while rarely exercised post-dissolution, pose a real risk. Liquidators must exercise judgment, manage expectations, and take measured steps to protect both themselves and the shareholders they serve.

Connie NeedhamComment