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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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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