When 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.