Liquidation (Voluntary)

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.

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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.