When a company faces tough times and can’t meet its financial obligations or pay off debts, the decision to shut down is usually made collaboratively by its leadership, management, and shareholders. This process is known as voluntary liquidation, and it involves wrapping up the company’s operations and distributing its assets. Voluntary liquidation can also occur once the company has achieved its goals as outlined in its Articles of Association (AOA).
One specific type of voluntary liquidation is called Members’ Voluntary Liquidation (MVL). In this scenario, if the company is still solvent. This means that the company has more assets than debts. Shareholders in such situations can initiate liquidation of the company by appointing a liquidator to close things down officially. The liquidator’s primary role is to sell all the company’s assets and settle outstanding liabilities or debts. The shareholders receive either assets or cash, depending on what the company has left to distribute. From the moment the process is initiated, numerous legal procedures can be stressful for any commoner; trusting the process with a professional resource such as Ancoraa Resolution can make things easier for every commoner involved.
Reasons to Opt for MVL
Following are some reasons why you might opt for this type of liquidation of a company.
- Compared to other methods where shareholders must pay income tax, capital distribution through MVL is more tax-friendly.
- Sometimes, when multiple shareholders want to divide the company’s assets among themselves, MVL can help. Assets like properties can be directly distributed to the respective shareholders; this is possible by applying relevant legal sections. It is important to note that it is easy to move the process by finding and using the appropriate legal Sections laid in the relevant Acts. Thus, it is essential to find a professional resource, such as Ancoraa Resolution, who would have years of expertise and excellent knowledge in the field.
- There are cases where company directors or shareholders want to retire, move abroad, or if the company is no longer needed due to changes in employment regulations.
- MVL can also be a valuable tool for reorganising a group of companies. For example, if a subsidiary company is no longer necessary or has become inactive, MVL provides a formal and strategic way to wind it down.
The Process of MVL
Following is a brief explanation of the MVL type of liquidation of the company.
- The initial step in MVL involves the company’s directors passing a resolution to initiate the winding-up process and appoint a liquidator.
- The directors must then call for a meeting of the shareholders to seek their approval for the MVL.
- During the meeting, the directors are required to present a detailed statement of the company’s affairs.
- The shareholders, in turn, vote on the resolution to approve the MVL.
- For the process to proceed, a majority of the shareholders must support the resolution.
- Once the MVL has received the shareholders’ approval, the appointed liquidator takes control of the company’s assets and commences the process of converting them into cash, a procedure known as realisation. This can entail selling the company’s assets, such as property and equipment, and collecting outstanding debts owed to the company from various sources.
In conclusion, the MVL type of liquidation of a company serves as a prudent and strategic approach for companies seeking to conclude their operations while efficiently managing their assets, taxes, and shareholders’ interests. This formal process allows directors and shareholders to wind up a solvent company and distribute its assets tax-efficiently, benefiting from entrepreneurial relief. By relying on a trustworthy resource such as Ancoraa Resolution, companies can ensure that the winding-up process is conducted legally and in compliance with the company’s articles of association.