September 29, 2022

Are you thinking of closing your business? Perhaps it is no longer profitable, or you’re ready to retire. You must do it correctly if you’re considering shutting down your company. Members’ voluntary liquidation (MVL) is one option for closing a business. 

What Is Members’ Voluntary Liquidation (MVL)?

MVL is a process where the company’s assets are sold, and the proceeds are used to pay off creditors. Once all debts have been paid, any remaining funds are distributed to the shareholders. MVL can be a good option for businesses that are no longer viable but have enough assets to pay off their debts.

If you don’t know where and how to start, you can get help and advice for insolvency from experts.

How Does MVL Work?

The first step in MVL is to appoint a liquidator. This is typically done at a shareholders’ meeting, where the shareholders vote to appoint a liquidator. Once the liquidator is appointed, they will take control of the company’s assets and begin the process of selling them off.

The proceeds from the assets’ sale are used to pay off creditors. Creditors are paid in order of priority: secured creditors are paid first, followed by unsecured creditors, and finally, shareholders. Once all debts have been paid, any remaining funds are distributed to the shareholders.

Benefits of MVL

There are several benefits to using MVL to close your business, such as:

  • MVL can be less disruptive than other methods of closing a business, such as administration or liquidation.
  • MVL can be quicker and less expensive than other methods.
  • It allows shareholders to control the process. This is beneficial if you want to maintain some degree of control over the disposition of your company’s assets.

Drawbacks of MVL

There are some drawbacks to using MVL to close your business, including:

  • MVL does not protect shareholders from personal liability. If the company has any debts, the shareholders may be held personally liable for those debts.
  • MVL may not be available if the company is insolvent.
  • It can be difficult to find a buyer for the company’s assets.

MVL vs. Other Options

Insolvency Administration

This is a pre pack administration wherein the company’s assets are sold before the company enters administration. This can be beneficial because it allows the company to continue operating while the sale is taking place. It may also be used to pay off creditors and avoid liquidation.

Creditors’ Voluntary Liquidation (CVL)

This is a process where the company’s assets are sold, and the proceeds are used to pay off creditors. Once all debts have been paid, any remaining funds are distributed to shareholders. CVL can be a good option for businesses that are no longer viable but have enough assets to pay off their debts.

Compulsory Liquidation

This is a process where the company is forced to shut down by a court order. The company’s assets are sold, wherein the proceeds are used to pay off creditors. Once all debts have been paid, any remaining funds are distributed to shareholders. Compulsory liquidation can be a good option for insolvent businesses that need to be shut down.

Company Voluntary Arrangement (CVA)

This is an agreement between the company and its creditors to repay its debts over time. It is a good option for struggling but not yet insolvent businesses. Company voluntary arrangement issues need to be considered before proceeding with a CVA.

For example, a CVA may result in the company’s assets being sold to repay creditors. This could mean that shareholders lose their investment in the company. Also, note that a CVA does not protect the shareholder from personal liability. If the company has any debts, the shareholders may be held personally liable for those debts.

What Is The Best Option For My Business?

The best option for your business will depend on your individual circumstances. If you currently struggle to pay your debts, but your business is still viable, you may want to consider a CVA. If your business is insolvent and needs to be shut down, you may want to consider compulsory liquidation.

If you are seeking a quick and less disruptive way to close your business, MVL may be your best option. However, keep in mind that MVL does not protect shareholders from personal liability.