A Members Voluntary Liquidation or MVL is one of the three kinds of liquidations that are applicable to business entities all over the world. As the name suggests, it is willingly taken by the company itself with majority consent from its owners, shareholders and directors. What makes this setup a tad bit peculiar to the general public is the fact that such is taken by a solvent company. By that we mean businesses who are fully operational, whose assets are greater than their liabilities and are still capable of fulfilling their obligations as they mature.
An MVL is defined as the legal winding up of one’s operations by a solvent entity for purposes it deems fit and necessary. It requires that owners or the board of directors come into a decision, a quorum being necessary in the latter. Just like in typical liquidations, the company chooses a liquidator to oversee and handle the entire process. Corporate assets will be sold off and the proceeds used to pay off any existing liabilities and lastly distributing whatever remains to the shareholders.
In order for a Members Voluntary Liquidation to be feasible and enforceable, the business entity has to prove its solvency otherwise a Creditors Voluntary Liquidation or CVL will be done instead.
So going back to the question in this topic, why do businesses go for an MVL? If they are still fully operational with a positive amount of cash flows and a larger amount of assets versus liabilities ratio, why would they want to wind up and cease operations?
REASON # 1: RETIREMENT PURPOSES – Owners and directors may wish to retire and thus want their assets reverted back to their personal accounts. An MVL can step in to give way to this.
REASON # 2: LACK OF SUCCESSOR – For most family owned businesses, absence of anyone to rise up and succeed the business may invoke the decision to liquidate. There are other options when such arises and a Members Voluntary Liquidation is one of them.
REASON # 3: LOSS OF SIGNIFICANT MEMBER – When a major employee dies, retires or resigns and such loss can put a significant blow to the business, liquidation can be used as a preventive measure to hold back future losses.
REASON # 4: COMPLETION OF PURPOSE – A Members Voluntary Liquidation is also the best thing to be done if an entity has already fulfilled its purpose or objectives in which case, it ceases its reason to exist.