Understanding Members Voluntary Liquidation Costs (MVL Liquidation Cost) in Singapore
Members Voluntary Liquidation (MVL) is a process undertaken by solvent companies in Singapore looking to wind up their operations. This procedure is used when a company decides to cease its business, not due to insolvency, but for other strategic reasons like restructuring, ceasing operations, or internal disputes. Understanding the MVL liquidation cost and its associated costs is crucial for businesses to ensure a smooth and compliant wind-up process.
What is Members Voluntary Liquidation (MVL)?
A Members Voluntary Liquidation (MVL) is a self-initiatedwind-up procedure initiated by the company’s members (shareholders) when they believe that the company can pay its debts in full within 12 months from the start of the liquidation process. This process starts with a Declaration of Solvency, followed by an Extraordinary General Meeting (EGM) to pass a Special Resolution for winding up and appointing a liquidator.
The Members Voluntary Liquidation (MVL) Process
- Declaration of Solvency: A majority of the company’s directors must make a statutory Declaration of Solvency, declaring that the company can pay its debts in full within 12 months.
- Extraordinary General Meeting (EGM): Shareholders pass a special resolution to wind up the company and approve a liquidator. This resolution must be filed with the Accounting and Corporate Regulatory Authority (ACRA) and advertised in a local newspaper.
- Appointment of Liquidator: A liquidator is appointed to oversee the winding-up process, including asset realization and creditor payment. The directors’ powers cease upon the liquidator’s appointment.
- Asset Realization and Distribution: The liquidator takes charge of the company’s assets, sells them off, and uses the proceeds to pay creditors. Any surplus funds are distributed among the shareholders.
- Final Meeting and Dissolution: The liquidator convenes a final EGM to present the account of the winding-up process. After this, the company is formally dissolved.
MVL Liquidation Cost
The MVL liquidation cost in Singapore varies depending on several factors, including the size and complexity of the company. Key costs include:
- Winding-Up Deposit: Deposit paid to initiate the process, including public announcements in the national newspapers (Straits Times, Business Times etc).
- Liquidator’s Fees: Vary based on the work involved and the size of the company.
- Administrative Costs: Including document handling, advertisement, and legal fees.
Tax Considerations
During the MVL process, companies must settle all Goods and Services Tax (GST) and Corporate Income Tax obligations still outstanding with IRAS. The approved liquidators in Singapore must ensure that all outstanding tax liabilities are cleared before the completion of the liquidation process. During this process, there is also a chance that IRAS can initiate a tax audit on the company too, which the liquidator must manage together with the directors of the company.
Members Voluntary Liquidation (MVL) vs Strike off of a Company
When it comes to winding up a company in Singapore, there are two primary methods: Members Voluntary Liquidation (MVL) and striking off. Each method has its own set of advantages and disadvantages, particularly in terms of complexity, cost, and the circumstances under which they can be used.
Disadvantages of Striking Off Compared to MVL
- Scope of Eligibility: Striking off is only available to companies with negligible or no liabilities. This limits its applicability compared to MVL which can be used even by companies with significant assets and liabilities.
- Thoroughness: MVL is a more comprehensive process. It involves a liquidator who ensures that all liabilities are settled, and assets are distributed appropriately. Striking off is less thorough in this aspect.
- Legal Finality and Potential Future Liability: MVL offers more legal finality as it involves a more detailed process of winding up. Striking off, while simpler, might not address all potential claims or liabilities as thoroughly. Directors of companies striking off are also still legally liable for the company during and for 7 years after the dissolution of the company.
- Creditor Satisfaction: In MVL, creditors are more formally involved in the process, and their claims are settled or addressed in a structured manner. Striking off might not provide the same level of satisfaction to creditors, as it’s a simpler process.
- Future Liability: If a company is struck off without properly dealing with its liabilities, directors or shareholders might face future legal issues. MVL, with its comprehensive process, reduces this risk.
Challenges and Best Practices
Maintaining accurate financial records is crucial to avoid pitfalls during the liquidation process. Companies should seek professional advice to manage compliance risks and ensure a smooth process.
Conclusion
An MVL in Singapore is a structured process requiring careful consideration of legal and financial implications. Understanding the process and associated MVL liquidation costs is essential for businesses to make informed decisions. Seeking professional advice can help navigate the complexities of MVL, ensuring compliance and optimal financial outcomes.