What exactly is Members Voluntary Liquidation? A voluntary liquidation is an orderly end-of-year wind-down and liquidation of a business which has been approved by the shareholders. Such an action will take place when the management of a company decides that the business has no further business worth to it. This can be due to a range of reasons such as the failure of the company to break even, problems arising within the company or simply the lack of business which it is unable to manage.
Under normal circumstances, the company will hire an insolvency expert who will go through the business and try to come up with solutions for any problems. With voluntary liquidations, the company members themselves decide to wind-down the company. However, in some cases, this can cause problems because in the case of the latter, the decision to wind down is not normally known ahead of time, due to it being undertaken by a committee. The usual procedure then is for a notice to be put before the shareholders to declare the company is into voluntary liquidation. The company will then be subjected to a winding up order, which means that a receiver will be appointed to oversee the management and operations of the business.
While the reasons that make a company into voluntary liquidations may be genuine ones, they are often not good enough to warrant the result. There are two other types of voluntary liquidations, namely compulsory liquidations, and compulsory auctions. Although both have their own unique issues, they are usually used in the same way. Compulsory liquidations generally mean that a court must be told that there is an inability of the company to pay its debts. The company is then forced to enter the administration and all its assets are sold off in order to pay off the outstanding debts.
The other method of voluntary liquidations is to involve an auction. In an auction, the company is generally ordered to wind up as a company and all its assets and debtors are sold off to clear creditors’ claims. It is usual for this to be an auction conducted by a court. There has also been the introduction of a new procedure called administration, which allows companies to pay off their debts via a trustee. With administration, as with compulsory liquidation, the company is subject to a winding up order.
The process of liquidation for a company is generally a straightforward one. Members of the company are asked to sign a resolution of voluntary liquidation. This states that the company is voluntary and that, if a payment cannot be agreed between the parties, then the company will wind up. The amount of money paid out is dependent on the value of the company’s assets. For instance, if the worth of the company’s assets is less than the combined debts of the company’s directors, the Board of Directors can sell off all of the company’s assets and settle the company’s debts.
If the directors feel they cannot pay out the full value of the company, then the company is still under voluntary management. However, they must pay out a percentage of the company’s assets, or have the company paid into a trust. If members continue to contribute to the company after it has reached this stage, the company will continue to benefit from members paying their voluntary premiums and being protected by the company’s guarantees.
A company can be brought into voluntary liquidation in one of two ways. If the directors believe that it is impossible to pay out the debts of the company to all the members, and the company is still able to pay some of its members their premiums, then the company could go into administration. The company would enter administration until the outstanding debts of the company are paid. If the company cannot pay all its debts, then it will have to go into voluntary liquidation. In a voluntary liquidation, the company’s assets are sold off to pay off its outstanding debts. However, the company will still be running and paying members dividends and it will be able to continue trading.
Liquidation in the UK means the company is going into administration, so all payments that it makes to its creditors will cease. It is important to remember that there is no guarantee as to how much the company will lose because liquidation could mean the end of the company, or the end of any trading activities. This is because the amount of liquidation that a company will undergo will depend on how much it owes, and how much the market value of its assets is at the time of the company entering administration. There is also a minimum amount of debt that a company needs to be able to pay, which is known as the requirement ratio. The most common company requirements are around 20%.
