A Members’ Voluntary Liquidation or MVL is one of two types that involve the deliberate act of an organization to wind up its affairs on its own accord. It is one done with intent and unlike a winding up petition, does not involve having creditors breathing down the organization’s neck.
Today, let’s get a clearer insight about the MVL as we take on this rundown on facts, procedures and reminders.
A Members’ Voluntary Liquidation or MVL occurs when the shareholders of a particular solvent company, by virtue of its board of directors, adopt a voluntary winding up resolution to put the company to a formal and legal close.
In such a set up, the company chooses and appoints a liquidator to spearhead the procedures which include the realization, valuation and sale of assets as well as their distribution to rightful parties (e.g. creditors and shareholders) to name some.
Reading the above description carefully, let us focus on the word ‘solvent’. An MVL is only allowed to be used by entities that are deemed solvent or in other words those who are able to meet their financial obligations and whose total assets exceed the total sum of its liabilities.
It is for the above reason why any organization seeking to enter the said process must comply and come up with a sworn Declaration of Solvency, a document and legal statement that shows and explains the organization’s thorough review of its financial statements, operations and records, all of which concludes the solvency and the ability to pay creditors within a period of no more than 12 months.
Should it be proven that the sworn declaration is false, the company and its directors shall face fines and penalties. In the United Kingdom for example, the acting directors can be banned for as much as fifteen years and may even face imprisonment for reasons of fraud.
So why would a solvent business close shop? There are many reasons behind such and they are all valid. First, there is the desire for a retirement, second the absence of a qualified heir and third is a reinvestment case. These three requires a Members’ Voluntary Liquidation or MVL as owners cannot withdraw and use the assets of the business and/or transfer it to their personal accounts. The reason is due to the fact that the law sees owners and the companies they own as separate juridical entities. Other reasons would include cessation or expiration of purpose and the aversion to risk.