When is a Member’s Voluntary Liquidation Forbidden

There are two ways of deliberately winding up operations and liquidating business assets. The first is referred to as a Creditors Voluntary Liquidation (CVL) while the latter is called a Members Voluntary Liquidation (MVL). In this article we’ll discuss about the latter, what instances call for it and when taking it is not allowed.

As mentioned earlier, an MVL is a voluntary move done by an entity who wishes to cease trading and redistribute its assets to stakeholders. It is passed by the owners, members or directors themselves for reasons that include the following:

  • creditors voluntary liquidationWish for Retirement – When a majority decision has been decided by the board or the owners, they can opt to close the business for purposes of their retirement.
  • Lack of Successor – A lack of heir or successor for an entity can also cause it to undergo an MVL for purposes of redistribution.
  • Accomplishment of Purpose – Once the organization has fulfilled all its objectives and its presence is not anymore deemed profitable and viable after such completion, it will also be wound up before losses come up.
  • Loss of Vital Member – The retirement, resignation or death of a very important member of the organization whose presence greatly impacts operations and profitability can be detrimental. As a measure to prevent terrible consequences, the company may prefer to wind up. This of course involves careful analysis and examination of the situation.
  • Precautionary Measure – Should impending circumstances bring about consequences that could prove to create a large amount of losses to the entity, an MVL may be taken in order to avoid it and cease when profits and assets are still available for distribution.

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A Members Voluntary Liquidation will call for an appointment of a liquidator to oversee the process of winding up which includes the sale of all assets and the distribution to creditors and shareholders. Unlike a CVL, this procedure ensures fulfillment of all obligations to creditors before any is given to owners and shareholders.

It is therefore forbidden for an insolvent company or one that is drowning in debt to apply for a Members Voluntary Liquidation. As a requirement, the entity must first declare and prove its capacity to fulfill its maturing obligations within a span of twelve months otherwise the procedure will be turned into a CVL. It should not be in any way used as a means to escape obligations.


Tips to Keep Corporate Solvency

Attractive businessman showing happiness in successFor a business to grow and thrive, it has to be both solvent and liquid. Today we’ll focus on the former, solvency, and the AABRS team is here to help all of us on how to achieve and maintain that.

But first things first, allow us to define what solvency is. Simply put, it is an entity’s ability to meet its financial obligations to its creditors as they mature or become due. This is for at least a time period of twelve months. If evidence shows otherwise, insolvency becomes a thing and this poses a lot of threat to your business. You can end up selling it or worse wind it up if you could not find a feasible solution. So back to the topic at hand, how does a company keep itself on the solvency platform?

  • Maintain an accounting of your transactions. – Doing so helps you keep track of things like expenses, sales, income, liabilities, assets and more. Your financials is a window to your company’s financial state. If you do not have a great accounting system and team then your reports will be messed up leading to wrong interpretations and eventually bad decisions.
  • Have an effective credit management system. – Credit comes in many forms from bank loans to mortgages to employee wages to taxes and more. An organization has to have a team who will look into the credit side of things, keep track of it and ensure that nothing goes bad. This way, you do not miss on payments and you avoid unnecessarily adding up to your credit.
  • Keep your resources properly allocated. – Wastage often leads to shortage which then leads to endless borrowings, payment defaults and credit applications and before you know it, you’re too insolvent to recover. This is why properly allocating and keeping a budget of your financial resources is a must.
  • Make it a point to save and invest. – Entrepreneurs need to acknowledge the value and importance of saving. If you spend and spend and spend then you could be risking it all. You need to have a safety net. Saving and investing will be that net.
  • Keep your credit score healthy. – A solvent entity is creditworthy according to the AABRS team. To achieve that, you must pay all your dues on time. It is of no secret that liabilities are present even to the most successful conglomerates in the world. It’s a matter of proper management.

What is a Winding Up Petition and What Can it Do

winding-up-petition-londonWhen a business is faced with a winding up petition, consider this as one of their worst nightmares. You would not want to receive anything like it. Think about having your biggest investor visit the company on a morning where you are suffering a massive hangover from last night’s party, a runny nose, awful cough and a funny tummy. Add in to that the fact that your jeans ripped by the back and you spilled coffee on your new laptop where your only copy of files is stored. Does it sound pretty bad? Sure it does.

A winding up petition is a forced liquidation brought about by disgruntled creditors who have a significant stake on the company. This is oftentimes their last resort after having exhausted all other means of collection. It brings about cessation of business and the total liquidation of the entity in question. All assets will have to be distributed to all creditors and if there is any left after paying them in full then such will be distributed to shareholders. If the total proceeds of the liquidation do not suffice to cover all the debt then creditors will receive an amount proportional to their interests and the remaining are to be written off.

It is also important to take note here that even if creditors file the petition, only an official order released by court will get the ball rolling. At the same time, the initial expenses in terms of filing will be shouldered by the creditors themselves. This is the reason why it is often their last resort and taken only if their returns prove to be higher than their expenses.

A winding up petition can bring numerous effects to any entity and that includes the following:

  1. Freezing of Assets and Bank Accounts

Once the court order has been released, one of the first effects to be felt would be the freezing of all company bank accounts. Assets will be frozen too and thus cannot be sold in any way. This aims to protect creditors and prevent the entity from withdrawing their assets.

  1. Possibility of Personal Liability for Directors

If directors are proven to have breached their responsibility and have continued to trade with the knowledge of insolvency, they will be held liable to creditors up to their personal assets.

  1. Tarnished Brand Name and Image

 A winding up petition also hangs a heavy chain on your company’s brand and image as well as your credit worthiness in the future.

AABRS.COM’s Warning Signs to Insolvency

insolvencyInsolvency has been defined as the state of not being able to fulfill one’s obligations as they mature or become due. It has to be acted upon as quickly as possible as it can result to worse consequences such as bankruptcy. We all know for a fact that no entrepreneur would wish that to befall upon their beloved businesses and so AABRS.COM is here to help you avoid that with the following warning signs to insolvency.

Daily Payment Demands – When creditors call up your office on a daily basis asking for payments, this could be a sign of a looming insolvency. They wouldn’t be pestering by the telephone endlessly every single day unless you’ve repeatedly missed payments.

Delayed or Missed Tax Liabilities – There is no valid reason as to why a company will purposefully delay or miss their tax payments. Human error is possible but is rarely the case. If this happens, it could be that the company is short of liquid funds.

Dividend Holidays – Dividends are profits paid pro rata to stockholders. A healthy and profitable company has payouts more often than those that don’t. Dividend holidays on the other hand pertain to the total absence of any payout.

Legal Threats – When your creditors send out threats of a winding up petition at court, this could be a result of repeatedly missing out on your obligations.

Long Outstanding Payables – The longer and more aged your payables are, the bigger your interests and penalties could be. It can also be the sign of inadequacy when it comes to repaying your obligations as they mature.

Poor Cash Flow – Cash outflows outweighing inflows is one of the major signs of insolvency. An entity will eventually drain out if it spends more than what it acquires.

Refusal of New Credit Application – Creditors and financial providers look into solvency and financial status of fund applications. If you are denied of one then you must check into your financial statements for yourself.

Refusal to Extend Credit Deadlines – Many creditors are willing to give extensions to their loyal and trusted patrons. This only ends when the patron has repeatedly breached payment schedules. So the next time that you ask for an extension, you will most likely be denied of it.

Stock Order Problems – Additionally, when suppliers and vendors decline your purchase on credit, this could mean that the relationship between the two has been tarnished in some way. One of which is missed payments due to fund shortages.

Trade Insurance – Lastly, AABRS.COM reminds entities that should your regular suppliers ask you for a trade insurance which they haven’t asked before, it can be a sign of skepticism as to your ability to fulfill the obligation timely.