Misconceptions About a Members’ Voluntary Liquidation or MVL

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.

Visit aabrs.com.

Keeping the Business Solvent

business-solvencyApart from profitability and growth, entrepreneurs also strive to keep the business solvent. Failure to do so can after all lead to the company’s demise so it’s only common sense to always keep it in check. The thing is such task isn’t exactly a walk in the park. It’s challenging if not more and will necessitate a lot of work. So how is it done? We’ve asked the experts over at AABRS to share their ideas on the subject.

First things first, what does being solvent mean? In its simplest explanation, it pertains to an entity’s ability to fulfill its obligations as they mature for at least within a twelve month period. It is characterized by a healthy level of cash inflow versus outflow and a ration of more assets over liabilities.

Such status is necessary to keep the business running because insolvency can lead to liquidation or a winding up petition from creditors. As mentioned, it takes work to maintain it and it’s not something that can be done overnight. That said here are some tips on how to keep the business solvent. Read up.

  • Keep records in check. – One way to easily detect a looming solvency problem is by taking a look at one’s financials. Of course, if records and accounting is faulty then it would cease to serve such purpose. This makes it important to ensure that such arm of the organization functions effectively, efficiently and timely.
  • Perform regular audits. – Examination of said records must also be done on a regular basis to be able to see and detect any threats as well as to pinpoint areas for improvement. Also, this should allow for risks to be detected early on so they can be stopped in their tracks.
  • Watch your receivables. – Make sure that cash is not locked up for long in their invoices and that receivables are watched to ensure that they are collectible. This also makes it important for the company to screen out customers before extending credit to them.
  • Manage credit wisely. – To avoid liabilities from growing beyond proportion, proper credit management is required. This entails the screening of all liabilities to be taken, the proper scheduling of payments and all other related tasks. Doing so will help prevent the company from taking on more credit than it is capable of says AABRS and thus in a way help keep solvency.