Is Member’s Voluntary Liquidation (MVL) the Best Option for Your Business? Pros and Cons
When a company is no longer trading, and its directors are looking to close it down, they may opt for a member’s voluntary liquidation (MVL). This is a process whereby the company’s assets are sold off, and the proceeds are used to pay off any outstanding debts. After this, any remaining funds are distributed among the shareholders.
Some companies provide expert advice for members voluntary liquidation that you can use to help you make the best decision for your business.
What Is Member’s Voluntary Liquidation (MVL)?
MVL is often seen as the best option for closing down a company as it allows shareholders to receive at least some of their investment back. It also has the potential to be less costly and time-consuming than other methods of liquidation, such as creditors’ voluntary liquidation (CVL).
There is an alternative to MVL called insolvency administration.
When Is MVL Used?
MVL is often used when a company has stopped trading and its directors believe that the company can repay all of its debts within 12 months. The decision to opt for MVL must be made by the shareholders and approved by a majority of them.
How Does MVL Work?
The first step in the MVL process is to appoint a liquidator. This is typically done at a shareholders’ meeting, where a resolution is passed to appoint the liquidator of choice. The liquidator manages the company’s assets and sells them off.
The proceeds from the assets’ sale are used to pay off any debts the company owes. Shareholders share any remaining funds. The distribution of funds is typically done in proportion to each shareholder’s shares.
MVL can be a relatively quick and straightforward process, and it may be possible to complete it within a few months. But the exact time frame depends on factors such as the complexity of the company’s affairs and the number of creditors that must be repaid.
What Are the Pros and Cons of MVL?
MVL can be a good option for shareholders as it allows them to receive at least some of their investment back. It can also be less costly and time-consuming than other liquidation methods, such as CVL.
However, there are some potential disadvantages to be aware of, such as:
- Shareholders may not receive all of their investment back.
- The process can be complex and time-consuming.
- There’s no guarantee that the company can repay all of its debts.
- Creditors may object to the appointment of a liquidator.
What Are the Alternatives to MVL?
If you plan to close your company, there are a few alternative options to MVL that you may want to consider, such as:
Creditors’ voluntary liquidation (CVL)
This is a process whereby the company’s assets are sold off, and the proceeds are used to pay off any outstanding debts. Any remaining funds are distributed among the creditors.
This means that you administer your insolvency with outsourcing help and can keep control of your company. It is a great option if you wish to continue trading and are confident you can turn your business around.
Company Voluntary Arrangements (CVA)
A CVA process is typically used when a company is facing financial difficulties but wants to try and avoid liquidation. Under a CVA, the company agrees to repay its debts over an agreed period of time.
The Bottom Line
MVL can be a good option for closing down a company, but you must be aware of some things before you make your decision. Alternative options include CVL and insolvency administration. Company voluntary arrangements are also an option if you want to try and avoid liquidation.