A Members Voluntary Liquidation or MVL is often marred with several misconceptions. Lack of understanding is to blame here. Both the general public and entrepreneurs alike need to identify what it really does to avoid any more confusion and therefore prevent false information from spreading.
Now, what are these misconceptions that we’re talking about? Take a look.
“It’s just like any other liquidation.”
On the contrary, it is quite special and one that many are not fairly acquainted with. To most people, liquidation only occurs when a company or organization is facing serious financial dilemmas which bring us to the next item.
“It refers to an insolvent company.”
This here is completely false. The thing is, even a viable, operational and profitable business can liquidate and this is by virtue of a Members’ Voluntary Liquidation or MVL. This method is only available to solvent entities that can pay up their obligations for at least a twelve month period. A statutory declaration of solvency that comes with proof will also be required.
Why would a solvent entity liquidate anyway? There are many reasons behind this. One is due to retirement reasons as when owners wish to enjoy the fruits of their labor. Second, there is risk aversion due. Third, the purpose of the company has expired or has been completed. Fourth, a qualified heir or successor isn’t present. Fifth, a significant member to the organization has retires, resigned or has expired.
“It leaves creditors empty handed.”
Again, a Members’ Voluntary Liquidation or MVL is not like a Creditors’ Voluntary Liquidation or Winding Up Petition where insolvency is present. A big factor and requirement in an MVL procedure is the fulfillment of all creditor obligations. Since the business that liquidates is solvent, it can therefore pay up its liabilities in full, and not proportionally or pro rata. In fact, enough assets and resources will remain after such payment. This remainder will then have to be distributed among owners and shareholders based on their percentage of interest in the business.
“It can harm credit standing.”
It won’t, not even a single drop. This is because the reasons for liquidation are not brought about by financing issues but rather for reasons as stated previously. Because taking a Members’ Voluntary Liquidation or MVL requires the business to fulfill all obligations in full, credit history and score remains in good standing.