Members’ Voluntary Liquidation: Why and Why Not?

members voluntary liquidationA Members’ Voluntary Liquidation or MVL is a type of winding up procedure. What separates it from the rest is that the entity that undergoes it is solvent rather than insolvent. This means that the company is fully operational, liquid and can satisfy its creditor obligations in full. So you ask. Why would a solvent business want to undergo liquidation? Well, why not?

There are many reasons behind a Members’ Voluntary Liquidation but here are just some of them.

  • Retirement is one of the major reasons. When owners wish to retire and revert the corporate assets back to their personal accounts, a winding up procedure msut be done first. Remember that owners and their businesses are separate juridical entities.
  • The absence of a qualified heir or successor is another case. This is especially true in family run and owned enterprises.
  • Re-investment is next on our list. If the owners wish to invest all of the current company’s assets into a new venture, it may have to liquidate first since not all assets are liquid and in cash.
  • When the purpose of the entity is deemed complete or redundant, it will have to be closed. This is important as it would be best to wind up now rather than later when it will eventually accumulate costs.
  • Lastly, when a significant member of the organization dies, retires or resigns, an MVL may be sought after especially if such individual holds a very significant knowledge or expertise that affects the profitability and effectivity of operations.

So what exactly happens in a Members’ Voluntary Liquidation or MVL procedure?

One of the first things that entities must obtain would have to be a statutory declaration of solvency from the BODs or Board of Directors. This document states that the company, after thorough investigation and examination of its finances and affairs, has concluded that it has the capacity to pay off all existing obligations. Remember that the procedure can only be taken by solvent entities otherwise it won’t be allowed by court.

The procedure must also come with the support of the majority vote from shareholders. The board of directors must also hire the expertise of a qualified liquidation practitioner to facilitate the process as well as appoint a liquidator.

A Members’ Voluntary Liquidation or MVL may not seem like a likely route that entities are going after but given the right reasons and circumstances, it has to be done.

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The Consequences to Insolvency

insolventInsolvency is a topic that should never be taken lightly. It is pretty major and can lead to the demise of one’s beloved company and in some cases even put one personally liable to creditors. But apart from the obvious, what other consequences does this bomb have? Better read on to find out.

There lies a possibility for a WUP. – A WUP which stands for a winding up petition is a severe method by which creditors force an insolvent company to liquidate. The court shall come into the picture and will impose a compulsory liquidation if the grounds presented by creditors are proven true.

Credit score shall be tarnished. – When the insolvency eventually leads to a bankruptcy or winding up procedure, expect credit standing to be stained. Nothing gets unrecorded and this can mean many things the most hefty of which would have to be finding it hard to apply for future credit or loans.

Assets may need to be sold. – Prior to a liquidation procedure, the entity may already be forced to sell some of its assets to cover for the payment of liabilities. The first to go are often the big ticket items like machinery and equipment as well as inventories.

Employee benefits will be cut. – When financial dilemmas arise, one of the first costs to go will be that pertaining to employee benefits. Of course, this is bad news for both employer and employees.

Personal claims are possible. – If any personal guarantees have been given, owners and directors are liable to pay up to the extent of their personal assets.

Director penalties are to be had. – The insolvency practitioner shall examine each and every director’s conduct to see if any negligence or dishonesty has occurred. If any, the director shall be held personally accountable as well and may even face legal consequences.

Brand will be marred. – Insolvency does not leave one unscathed. It can leave a scar on the business and its brands to the point that customers, investors, business partners and suppliers will withdraw their support.

Insolvency is not yet the end although it sure is close to it. Experts therefore suggests that companies must act really fast and smart in order to stop sinking deeper. It may take a lot of effort to rise back up and keep from drowning but believe us when we say this; with the right methods insolvency can be solved. Many have and so can you.

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How Smart Entrepreneurs Act When Faced with Winding Up Petitions

winding-up-petitionWhen faced with winding up petitions, what does an entrepreneur have to do? Today we’ll talk about this very important topic so be sure to read on and take notes.

Winding up petitions (WUP) are a process that involves the dissolution of a corporation. Primarily brought upon by disgruntled creditors, it is submitted to court where an order shall be released if the evidence and claims prove to be valid thus forcing the company in question to liquidate and cease operations.

This affects insolvent companies that no longer have the ability to fulfill their obligations to creditors and whose total liabilities exceed its total assets. In the course of a company’s lifetime, a WUP is considered to be one of the most fatal scenarios that could befall any institution as it forces it to liquidate whether it wants to or not, strips of director control and even involves investigation. It’s definitely a bomb, if we would have it.

Handling winding up petitions is a very serious matter and smart entrepreneurs know this very well. There are a couple of things that they ensure to make the process as less painful as it already is. In some scenarios, they even get to flip the situation and avoid it altogether.

#1: They act really fast.

In this situation, the court shall release the decision seven days after the petition, a time where entrepreneurs can take action. It’s relatively short but if efficiently utilized shall be enough.

#2: They hire an expert.

Even directors and officers are not experts at liquidation procedures. After all, that’s not what running a business is about. This is why hiring a qualified insolvency and liquidation practitioner must be done. From them, advice and best courses of action can be taken.

#3: They talk to creditors.

One of the reasons why creditors go with a winding up petition is because payment of the value owed from them has been repeatedly delayed and denied. Their last option to recover such value is the WUP. Within the seven days, the company can still come up with an agreement which could make the creditors withdraw the petition.

#4: They assess the values.

Smart entrepreneurs will scrutinize every detail. Is the amount brought up by the creditors at court valid? If it isn’t then, it is crucial to bring this up.

When faced with winding up petitions, smart entrepreneurs should know what to do. In fact, they should already have a game plan for such a threat.

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Financial Distress Detection

financial distressAs the old adage goes, “Prevention is better than cure.” This not only applies to health and wellbeing but it also makes sense in terms of business. Think about it. It would be better to avoid a problem altogether rather than find a solution as it strikes. Achieving this feat entails that you should be well prepared and that you must also be equipped with adequate knowledge. One of the best ways to prevent financial distress is to know the warning signs and AABRS experts are here to tell us what these are.

  • Long Outstanding Receivables – When much of your credit sales remain unpaid and uncollectible for too long, it could give rise to liquidity problems and cash shortages. Take a look at your credit policies. Are they too liberal? Is your collection function ineffective?
  • Long Outstanding Payables – Likewise, when you have payables that have not been paid for a long time, you are risking interests and penalties. Plus, this can be seen as a sign of a problem. There’s no other valid reason for you to miss no your payments unless you’re short on the cash. Human error can also be a factor but with programs and systems in effect, this is rarely the case.
  • Dividend Cuts – It does not necessarily mean that when a company cuts down or eliminates their dividend payouts, it is already on the verge of liquidation. There can be other reasons such as retention for reinvestment purposes. However, dividends are one of the first to go should an entity be in financial trouble. It is still worth checking just to be sure.
  • Top Management Turnovers – Employees want to safeguard their sources of income and so if the boat is sinking, all passengers will want to abandon ship and save their lives. The same is true for businesses. If you notice defections in many top management positions, this should be a cause to worry. Remember that they are the first to find out about any problems that the company faces.
  • Reduction in Employee Perks – All companies know that happy employees mean happy customers thus more profits. Businesses will try as much to give perks and benefits to staff but in the guise of financial distress, these shall be lessened to a significant degree if not cut off completely.

It would be far easier to prevent and keep financial problems at bay rather than try to fix it so better keep the above list from AABRS in mind at all times.

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AABRS Guide to a Financially Stable Restaurant

restaurant-fundingEvery entrepreneur and restaurateur’s dream is to expand their business and open up even more shops and branches. This cannot be achieved if you often find yourself financially unstable. You will need a steady cash flow and a positive income to enable the change to happen. We all know that doing so is both a task and a challenge. It’s not something that you can whip in thin air. How does one keep their restaurant financially stable then? Here are some tips to avoid falling in the pits of prepack administration or voluntary liquidation.

  • Track your Expenses

You need to have a good grip of the outflows and spending. You cannot let it loose or else you’d be risking your finances. Be sure that all transactions are recorded accurately and timely with all accompanying documents maintained and organized accordingly.

  • Analyze Your Sales and Income

Know how much sales you are generating and analyze these data to determine the low points and peak hours of business. This should also help you see where you could improve on and which items may have to be dropped as they do not generate income.

  • Trace and Evaluate Progress

Be sure that you evaluate your progress too. Compare sales versus expenses to find out whether you are generating any actual profit. Also compare these information acrss varying periods.

  • Avoid Credit and Debt as Much as Possible

Many restaurants fall prey to way too much debt and that can be detrimental. There is no harm in using credit to finance your operations but do not rely unto it heavily as a company running on liabilities is never attractive in investors’ eyes. It can pose risks to insolvency and bankruptcy. But if you are already drowning in debt, you need to go to a reputable firm like

  • Always Devise Plans

Be sure that you have your business plan rolled out as well as your budget to keep your operational and financial decisions and actions well guided. Do not rely on impulse decisions because they often lead to bad outcomes.

  • Leave Something for Savings

Do not spend everything that you earn. You should keep some as retained earnings which can be used for future projects, improvements or as a reinvestment in the form of new branches or other business endeavors.

  • Create Contingency Plans

AABRS experts state that it would be wise to have an emergency fund at the ready alongside contingency plans just in case certain risks come your way. You must be prepared at all times and this could help you remain stable amidst a crisis.

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The Road to a Creditors Voluntary Liquidation

creditors-voluntary-liquidation (1)Going into business is an investment. You put your hard earned money out for hopes that it will grow with the help of profits. But just like any other investment, opening a business regardless of size involves a lot of risk. One of the biggest risks out there for any entrepreneur would have to be a Creditors Voluntary Liquidation or a CVL.

Of course no entrepreneur would want to close shop unless worse comes to worse. However, certain situations may call for it, insolvency being the major factor here. When the entity can no longer fulfill their obligations as they mature within at least a twelve month period and when disbursements outweigh cash inflows, the company could be suffering from a financial distress and unlike other dilemmas this can be pretty bad.

Remember that it is considered illegal for entities to continue trading should they already be fully aware or at least clued in about the situation. Directors have the responsibility of managing the affairs of the business. This includes seeing to it that creditor interests are fulfilled before anything else. In other words, they should be paid first before profits are distributed to owners. Creditors include not only the financial providers and vendors of the entity but also its own employees. Should directors be proven to have committed a breach of such responsibility, they may be held personally liable and thus may have to pay creditors not only with their shares in the business but also with their own separate and personal assets.

A Creditors Voluntary Liquidation or CVL is a process that allows an insolvent company to wind up its affairs and close on their own accord. Such decision is initiated by the board of directors and made to roll through a board resolution. Here, the company will often hire a qualified liquidation and insolvency practitioner to handle the case. An appraiser may also be called in to determine the value of the assets to be liquidated. Meetings with the shareholders and creditors will also take place as well as an appointment of a liquidator. A CVL may not be in your plans when you put up shop but should it happen, one has to learn how to bow down gracefully or else suffer the wrath of a winding up petition in court.

When certain risks have become too high and insolvency has been proven after thorough examination and deliberation, a Creditors Voluntary Liquidation should be considered if not, other business recovery options should be looked into.

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Why Go For Members’ Voluntary Liquidation or MVL

Members-voluntary-liquidationWhen do you frequently hear companies close down? Oftentimes it’s during those instances where they get buried in debt, economy is down and losses abound, market interest drops or when sales have plummeted. What most people fail to realize is that a winding up can also occur even with a fully operational and solvent company. This is where the Members’ Voluntary Liquidation or MVL comes into the picture.

A Members’ Voluntary Liquidation is a resolution for willingly winding up a business by its owners, directors and shareholders who have the power to appoint a liquidator or winding up practitioner. The MVL is not an insolvency procedure and as a matter of fact can only be taken by entities who are not debt heavy, who have an adequate ratio of cash inflow versus outflow and who are considered fully operational. This also makes it a necessity for companies who want to take an MVL to pass a statutory declaration of solvency as it is deemed illegal for you to take it under the guise of an insolvency case. Should you do so, that will put you criminally liable.

But it doesn’t make sense just yet. Why would a solvent business want to close shop and liquidate its assets? Is it actually feasible and legal? When is it a valid and necessary procedure?

There are several reasons as to why owners, directors and shareholders would want to get a Members’ Voluntary Liquidation rolling and the list below enumerates some of the most common reasons behind it.

  • Accomplishment of Goals and Achievement of Purpose

Every entity or organization was built and founded upon several reasons and numerous objectives. There are those where upon completion of these will have to cease to exist. If the very purpose of the organization has been attained or even if it has been lost, the business may want to liquidate in order to redistribute its assets to its stakeholders.

  • Death, Resignation or Retirement of a Vital Member

Some entities find themselves heavily dependent upon the expertise and talents of a few or a single employee that once such professional has been lost, threats show themselves left and right. To avoid aggravating the situation, an MVL can be an option.

  • Retirement or Reinvestment Purposes

After working for long years, owners may want to retire and use their share in the business this way. In some cases they may want to venture out on other businesses and close the one they have at the moment. These will require a Members’ Voluntary Liquidation to take place to turn into cash all fixed assets as well as fulfill remaining obligations.

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How to Break the Insolvency News to Employees

business-insolvencyOne of the worst news that a business owner and entrepreneur can get is one of insolvency. It’s awful and really heavy on the shoulders. After all, no business person opens up shop with the end goal of closing it down. You want it to strive, to grow, to expand and to survive the years to come. What’s worse than knowing this news is relaying it to your team or to your employees. It’ll surely be bad news but you’ve got to do what you got to do. On that note, has some tips on how to break the insolvency dilemma to them.

Get your facts straight. – You first have to gather all your evidences. Sure, you don’t have to necessarily get into the nitty gritty of everything but you need your facts and you need them so you can better explain the situation. You don’t want to exaggerate or give false information. That’s not the way to go.

Come up with solution options and a timetable. – When insolvency looms, companies need to look into options and alternatives. This includes having a timetable of tasks and errands to do. You need to have this in check too so you can tell your employees of the measures being done to solve the problem and have them in full cooperation.

Keep them rightly and aptly informed. – They have to be clued-up timely, correctly and appropriately. Eventually, everyone in the company will get the news and you don’t want them to make speculations and come up with the wrong ideas. There are after all red flags and warning signs that your staff can notice. It’s best to tell them than keep them second guessing or making the wrong assumptions.

Tell them of your plans. – What do you plan to do? How are you fixing the problem? You need to tell them too. This way, cooperation will be upheld as mentioned earlier. Furthermore, should liquidation be on the rise your employees will have a chance to prepare themselves. They are after all striving to provide for themselves and their families. Catching them off guard can cause a huge turmoil in their income streams. Good employers should not be selfish. They watch out for their staff too.

Breaking the insolvency news is never easy but if you have the above tips from in mind, then things should run more smoothly.

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