A Members Voluntary Liquidation (MVL) is a procedure that seeks to close operations and wind up the affairs of a viable and solvent entity. It is one that requires the business to submit a declaration of solvency to prove capacity to pay creditors in full. Now you might wonder why any company would seek the said procedure if it is first and foremost operational and is perfectly capable of fulfilling obligations. It’s possible. Financially troubled entities aren’t the only ones that liquidate. What are the reasons behind an MVL then?
#1: Expiration or Achievement of Purpose
Organizations, both for profit and not for profit, are built on a purpose. These can be seen in the organization’s mission and vision statements and its objectives. When the reason behind the establishment of the business expires or is achieved, it can close shop and redistribute its assets to owners even if it is solvent.
#2: Loss and Risk Aversion
It would be better to pack up your bags when you still have something to earn than do so with staggering losses. This is the logic behind this reason. Should a company believe that an imminent threat or danger brings in significant losses to the business that could lead to its insolvency, it may consider for an MVL procedure.
#3: Loss of a Significant Member to the Organization
If a vital member of the organization whose knowledge, skill and expertise is so crucial to the operations and profitability of a business entity retires, resigns or dies, this can create serious threats to the company. To avoid the consequences of such occurrence, liquidation becomes a thing.
#4: Retirement Purposes
Of all the items in this list, this cause is by far the most common. When owners and/or directors wish to retire and enjoy the fruits of their hard work, they will first have to undergo a Members Voluntary Liquidation. This is because the company is a separate juridical entity and its assets are independent from its owners. To transfer such assets from the former to the latter, the former has to be wound up first.
#5: Withdrawal for Reinvestment
A Members Voluntary Liquidation or MVL may also be called for when owners wish to bring their money somewhere and reinvest it in another venture. This can be done especially when a better opportunity lies ahead and such returns prove to be more profitable.