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A ‘voluntary Liquidation’ is one that is agreed upon by the members/shareholders/ investors of the business. They are effectively the ‘owners’ of the company, and it is they who volunteer to end the company’s existence by passing a special resolution; doing so at a general meeting of the shareholders/members.
There are two types of voluntary Liquidation; a Members’ Voluntary Liquidation (MVL) and a Creditors’ Voluntary Liquidation (CVL). In the former, the directors of the company can and are willing to swear a declaration of solvency (and this can only be sworn if the directors are of the opinion that the company can pay all of its debts (including interest and expenses) within 12 months from the swearing of the document).
In the latter, the directors either cannot swear the above declaration (because the company is ‘insolvent’ – it cannot pay its debts as they fall due, or the company’s assets are less than its liabilities) or the directors are not willing to risk swearing the declaration.
Although the ultimate decision to volunteer to end the company’s existence is that of the shareholders/members, it is the directors who kick-off the voluntary Liquidation process. They are the day-to-day managers of the company, know its challenges and threats, see its finances, deal with suppliers and employees on a regular basis and develop marketing plans and sales strategies. They will call a board meeting and, amongst other things, resolve to call a general meeting to ask the shareholders/members to pass a special resolution ending the company.
By definition, one of the main players in a CVL is the creditors. It is they who will arguably be most affected by both the process and the outcome, as they will almost certainly not get their debt paid in full (often receiving as little as few pence in the pound).
The creditors will appoint the Liquidator by a decision process and may be involved in policing their activities by forming a creditors’ committee. CVLs are the most prevalent type of corporate insolvency.
(See ‘Declaration of Solvency’, ‘General Meeting’, ‘Insolvency’, ‘Members’ Voluntary Liquidation’, ‘MVL’ and ‘Directors’.]
