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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