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The Members Voluntary Liquidation or MVL Fact Sheet

Liquidation-2For 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.

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The Pros and Cons of Winding Up Your Business

Winding up procedures is a process undertaken by companies who wish to put their business operations to a close. This is done for many different reasons such as the inability to pay off creditors, change and loss of market’s interest, depleted demand and for some the absence of heirs or simply retirement. For whatever purpose winding up your business has its cons or so called disadvantages. Here is a list of them.

1.    winding upYou will lose the power at managing and having control over corporate assets since once a liquidator has been appointed he or she will take care of the entire process from sales to distribution. You cannot anymore dispose them.
2.    The period of time given for you to resume operations will not be for profit purposes or personal gain but rather only for the completion of the procedures in winding things up.
3.    The court order (compulsory) also serves as a letter of dismissal to all employees except those which are bound to a fixed term contract which requires a period of notice for the enforcement in which case such employee is entitled to a sum for damages.
4.    If you own or are part of any other business whether in an industry related to or not to the one you are winding up, it can cause some harm from a minor scratch to a solid blow.

Now there too are advantages to such procedure as opposed to other forms of its kind:

1.    It is beneficial for business owners whose purpose is not due to insolvency.
2.    It is a formal and official manner in which everyone gets their fair share and interest to the company (i.e. creditors, owners, shareholders, etcetera)
3.    It will only take a few months to finish which will not be a burden to all parties involved.
4.    It formally puts a company to a close.

Now the question is whether you should or should not wind up your operations. Should you do it voluntarily? Are the warning signs what you think they are? To better have a decision that will fit your situation and benefit you best, it is advisable that you talk to your consultant and adviser or some other expert who knows and expertise in such affairs.

Remember that putting a close to your business does not only affect your won interests. It deals with a lot of other people too.