Under the Insolvency Act of 1968, one of the liquidation processes that have emerged out in the open is the Members' Voluntary Liquidation. It signifies the steps for the liquidation of those companies that are solvent, or in other words still have the ability to pay off their debts.

Usually, liquidation is taken as a last step for those companies, which are insolvent and can no longer pay their debts. When such a situation is reached, the company liquidates, and its assets are sold off to pay the debts. However, it is not necessary that the company be insolvent to be liquidated.

A VML is the option that should be taken if the members of the company find themselves not willing to continue the operations of the company. In addition, in the case of losses, but not insolvency, or indecision of the continuation of the company, a VML is a feasible choice. As it is, it qualifies as an opposite for mandatory liquidation. Nevertheless, VML is only possible if the enterprise has the ability to pay off its debts. In other words, the company must be solvent.

The liquidation process starts with a formal resolution to wind up the company. This resolution is made at a company meeting where the financial position of the company is discussed. At this board meeting, a resolution of the board is taken in which, it is decided whether it is viable to liquidate or not. The decision to appoint a nominated liquidator is also taken. The resolution will be passed only if seventy five percent of the members agree to it.

After this, within five weeks of the resolution, a formal Declaration of Solvency should be produced. The Declaration of Solvency is a proof of the solvency position of the company, and contains details about the assets and liabilities of a company. It is evident that the company has the ability to pay creditors together with statutory interest within a maximum of 12 months.

After the necessary legal procedures have been undertaken, the liquidator is then responsible for valuing the assets of the company, to sell them off, or distribute them amongst the shareholders, and members. When the liquidator is appointed, the authority of the directors is ceased, although he liquidator will consult them in all the matters. A MVA process lasts as long as it takes the company to complete all the mentioned legal proceedings.

The shareholders get benefits through an MVA in the form of the repayment of their investments that they had put in for the establishment of the company. Either they get the assets of the company, or the liquidator who sells the assets of the company pays them cash equivalent of those assets.

However, the ability of the company to pay its debt within a year should be made sure of along with the validity of its solvency status. During the entire course of the liquidation process, if the company is found to be in an unstable financial position, there is always a danger for the directors to be facing legal action, and being taken to court.

Bobby Dazzler is a financial consultant. You can take his advice on members voluntary liquidation and complete information about cva at his recommended website at http://www.beesley.co.uk.

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