Misconceptions About the Members Voluntary Liquidation

liquidationThe Members Voluntary Liquidation or an MVL as others would prefer to call it is only one of the three types of liquidation. It is where the shareholders of a company, through its board of directors, adopt a voluntary winding up resolution and at the same time appoint a qualified practitioner as liquidator to facilitate the procedure, sell the business assets and distribute proceeds to all qualified parties. Check out http://www.aabrs.com.

Among the three types, the MVL happens to be always riddled with confusion and heaping misconceptions. We don’t really wonder why as most people often relate the word ‘liquidate’ to losses which isn’t always the case. To better align our facts, we’ve listed down the myths versus the truths for everyone’s perusal.

Misconception: All companies can take on an MVL.

Truth: Only liquid and solvent entities can call for the procedure. In other words, these companies are operational and therefore can meet both short and long term obligations. Insolvent and financially incapable businesses are prohibited from taking a Members Voluntary Liquidation to avoid fraudulent misleading of creditors and illegal shedding of liabilities. This is why a ‘statutory declaration of solvency’ is required.

Misconception: Shareholders and owners get nothing.

Truth: This is completely false. Of course shareholders and owners are bound to receive from the distribution as the entity, being solvent as it is, can fulfill its obligations and is thus characterized by a bigger ratio of assets to liabilities and cash inflows to outflows. The order of distribution however will begin with creditors. They will be paid in full first before shareholders do.

Misconception: Directors and officers lose control.

Truth: Because the MVL is a voluntary procedure, the corporate directors and owners retain control over the company. The creditors do not gain any amount of control over the corporate operations and affairs. The entity even gets to appoint the liquidator in this case.

Misconception: It is taken to avid losses.

Truth: This is only partly true. Indeed, one of the reasons why some companies call for a Members Voluntary Liquidation is because they want to averse certain risks. This can be future losses brought about by an imminent factor that is unavoidable or difficulties due to the death, retirement or resignation of a crucial member of the organization. Other causes for the procedure include retirement of the owners, absence of a qualified and willing heir or successor and reinvestment purposes.