What are Members Voluntary Liquidation? Well, to put it simply, it’s when a company enters into liquidation. Normally in such cases there has been unsuccessful attempts by the company to resolve the debt through standard means. For example, if you have an account that is way over your head in terms of debt, it may not be possible to get your creditors to agree to a lump-sum repayment. As a result, the company makes the decision to enter into Members’ Voluntary Liquidation. By entering into this process, the company can then agree with your creditors on a reduced amount that they can pay off with an auction of your assets.
This is considered to be a voluntary process as the companies are not forced into it. Usually, companies choose to go through this process when they are facing increasing pressure from their creditors. The companies only need to make a few payments that they have agreed upon with their creditors. Once they have reached a certain amount, they will cease making payments and all outstanding debts will be settled. In many cases this involves an auction of assets in order to settle the debt.
So, how do companies decide if they are going to enter this voluntary process or not? Well, in recent years there has been a significant increase in the number of companies that are opting to liquidate. In fact, it is now being referred to as being like a ‘credit crunch’.
In order for a company to be entered into the Members Voluntary Liquidation process they need to show that they are unable to pay any more than they can to their creditors. They also need to show that they have tried other alternatives to paying off their debts including entering IVAs and other forms of agreements. The company will then have to provide written evidence that they cannot continue to service their debt and that any alternative arrangements they have made have been unsuccessful.
As well as providing proof of inability to pay, a company also needs to show that they are trying to try to repay the debt. They must provide documentation outlining what has happened at each stage of the process, how much they have repaid and how successful they have been at doing so. These are known as the results of the company administration process.
However, just because the company is unable to continue with their debt does not mean that they should go ahead with a bankruptcy. There are many reasons why a company may enter a Members Voluntary Liquidation process such as repossession of property, winding up, repossession followed by creditor negotiations, compulsory liquidation and even reorganisation. If a company is unable to pay its creditors or find some form of solution, a bankruptcy will undoubtedly be the last resort. If a company fails to get any kind of resolution from its creditors, an event known as winding up will occur.
Once all avenues leading to a company administration have been exhausted, and the company no longer can pay its creditors, it is likely that the company will wind up in the receivership market. This is when the company is sold off to one of several creditors that are looking for a quick solution to the problem. A creditor that buying a company can then make an offer to all the company’s creditors. The offer will need to be approved by several creditors before the company can get back up on its feet again.
One of the main benefits of Members’ Voluntary Liquidation is that it avoids a long and drawn-out court procedure. In the past, it was necessary for companies to go through a lengthy series of formalities and meetings with creditors. By allowing Members Voluntary Liquidation to take place, this process is avoided. Also, once a company is listed as being voluntary, that company has no longer been able to ask for court approval to collect its debts from its creditors. This can really help improve the credit rating of a company, which is important if the company wants to continue trading.