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How Does Voluntary Liquidation Work

How Does Voluntary Liquidation Work.

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How Does Voluntary Liquidation Work

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  1. How Does Voluntary Liquidation Work?

  2. Businesses that need to be wound up and pay off their creditors may decide to take voluntary liquidation as an alternative to bankruptcy or compulsory liquidation. There are two ways to go about voluntary liquidation - one brought about by the directors of the firm and the other by the company's creditors. In what is known as members' voluntary insolvency (MVL), the directors of the company sign a declaration stating that the organisation has sufficient assets to pay all its creditors and meet other financial obligations - such as redundancy payments for staff - within 12 months of the start of the winding up process.

  3. This is known as a solvency declaration and it is what differentiates a resolution passed by the directors to one voted for by creditors. A liquidator will then be appointed to handle the process and ensure that all the firm's debts are paid off and financial obligations met. The registrar must be notified about the liquidation within seven days of the creditors' meeting and the appointment of a liquidator must also be published in the London Gazette and in a local paper. It may be that this is the best option to choose after seeking bankruptcy help, particularly if efforts to sell off the company or find new management have failed.

  4. Creditors' voluntary insolvency (CVL) is slightly different to MVL in that no declaration of solvency is required from the directors. A CVL can be brought about by a vote at a general meeting and will see a liquidator, insolvency practitioner or liquidation committee appointed to wind up the Voluntary liquidation company's business and sell off its assets in order to repay monies owed.

  5. If there is any money left following the sale of the firm's assets, this will be distributed among company members. Opting for voluntary insolvency means that a business will cease trading and should only be considered as a last resort if other avenues to save the organisation have failed. Before deciding to go down this route, it is important to seek the advice of a qualified professional who can make sure that you really have no other option and can guide you through the process to ensure it all goes smoothly.

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