Deciding Which Type Of Voluntary Liquidation Is Best
For a company to decide which type of voluntary liquidation is appropriate
, the company directors must first review their current financial situation and look at the reasons as to why the company is failing. If there is a chance that the company can be saved, then a financial advisor may be able to suggest an alternative procedure.
If a company director owns a family business and wishes to retire but there are no family members to pass the business onto then a decision may be made for the company to enter a Members Voluntary Liquidation (MVL). This procedure is also ideal if the company is solvent. Before making a declaration that the company is solvent, company directors must be sure that they are able to pay off any debts, otherwise they could face penalties.
If a company is insolvent, then a decision may be reached to enter a Creditors Voluntary Liquidation (CVL). During this process, company directors will lose control of their company to a liquidator, who along with creditors will investigate the company and question directors as to why the company has failed. This process may be difficult for some companies, but will allow the liquidator to take control of the companys assets and ensure that creditors are paid.
One of the main disadvantages of voluntary liquidation is that companies will have to cease trading. Companies who continue to trade whilst insolvent could have action taken against them for wrongful trading. Company directors who believe that the company is able to continue trading may need to consider an alternative option to liquidation so that the company has more chance of surviving. A qualified insolvency practitioner can also advise companies on which route to take as well as taking on the role of a liquidator.