For most people, the general public in particular, liquidating a company is almost always associated with poor profits and losses. That is true to some degree but not all business entities that undergo such procedure do so because of financial distress. There is also this thing we call the Member’s Voluntary Liquidation or MVL.
The MVL pertains to the liquidation of a solvent firm’s assets by virtue of a resolution passed by its board of directors to voluntarily wind up the business affairs. It is important to take note that this is not an insolvency procedure and must therefore be accompanied by a statutory declaration of solvency by the firm’s board of directors as it is considered a criminal offense to do so otherwise. The court or the creditors will not be able to force anything unto the company. The shareholders will have the power to choose a liquidator to manage all affairs and procedures necessary.
All assets will be liquidated with proceeds to be distributed to all parties with interest or share in the business. All creditors must first be paid in full before any amount is given to owners and shareholders. In the event that the entity’s assets is not sufficient enough to cover its obligations to its creditors, the Member’s Voluntary Liquidation will be deemed invalid and creditors can now go for a forced liquidation procedure.
Now, you might be wondering what valid reasons are there that will make an MVL reasonable. Why in the world will a solvent company want to wind up its affairs?
Firstly, there will come a point when owners will want to retire. Of course, we all want to enjoy the fruits of our labor in our old age. Since, the business and its owners are two separate and distinct entities in the eyes of the law, the former must be liquidated in order to transfer its assets to the latter’s personal accounts.
Another scenario is where an organization does not have a qualified and willing heir or successor. Other than leave it to somebody who’s incapable and who will only lead to its demise, it would be more reasonable to wind up and redistribute or even reinvest in other ventures.
Lastly, a Member’s Voluntary Liquidation or MVL may also be called for where a risk becomes imminent and threatens the company’s liquidity and profitability. To avoid the losses, liquidation becomes an option. It would be better to do so now when profits still abound than when all you can declare are losses.