Voluntary liquidation, also known as members’ voluntary liquidation (MVL) or creditors’ voluntary liquidation (CVL), is a process through which a company decides to wind up its affairs and cease operations voluntarily. Unlike compulsory liquidation, voluntary liquidation is initiated by the company’s directors or shareholders.

There are two main types of voluntary liquidation:

Members’ Voluntary Liquidation (MVL):

MVL occurs when a solvent company decides to liquidate its assets and distribute them to shareholders.

It is typically initiated by the company’s directors and requires a special resolution passed by the shareholders.

MVL is commonly used when shareholders wish to close down a company after achieving its purpose, such as completing a project, retiring, or pursuing other business opportunities.

In MVL, the company’s assets are realized, its debts paid off, and any surplus funds are distributed to shareholders per their shareholdings.

Creditors’ Voluntary Liquidation (CVL):

CVL occurs when a company is insolvent and unable to pay its debts as they become due.

It is initiated by the company’s directors, who must convene a meeting of shareholders to pass a resolution to wind up the company.

In CVL, a liquidator is appointed to oversee the liquidation process, sell off the company’s assets, and distribute the proceeds to creditors according to a prescribed order of priority.

CVL may be initiated as a proactive measure by directors to avoid the risk of personal liability for insolvent trading or in response to pressure from creditors.