How to close a limited company in the UK
Before you start thinking about liquidation, you need to ensure that closing your business is the right decision. In this article, we’re helping you with how to close a limited company in the UK.
It might be fairly clear that it’s time to close your business, but if there is any doubt whatsoever, 1st Business Rescue will be able to assist. Any advice you receive will be tailored personally to you as a director and to your individual business needs. Understanding the impact on you personally from a financial perspective is crucial to the process, and our unique approach means we will advise you on this thoroughly.
Establishing your’s and your business’s position is the first stage in the process and one we will do in partnership with you. We’ll get a full picture of where you stand and will, therefore, be able to help you decide the best course of action.
Closing a limited company can be somewhat complicated, and 1st Business Rescue will guide you through every stage of the process to ensure it is done robustly and thoroughly.
Before entering liquidation, you should be aware of who your company owes money to. You also need to ensure that you have up-to-date tax returns and are aware of your company bank account. It’s not much use only having access to your company’s annual accounts at this point.
Is my limited company solvent or insolvent?
If your business cannot pay its bills or its debts on time, then it is insolvent. It is also insolvent if the sum of the liabilities amounts to more than the sum of its assets. This often means the business will need to close and one of the ways to do this is via a Creditors’ Voluntary Liquidation (CVL).
A CVL is a formal insolvency procedure where the directors choose to voluntarily close the business allowing them to keep as much control as possible. The business is able to appoint its own liquidator, and a process is defined whereby the company’s assets will be realised in order to make specified repayments to creditors.
You may choose to close your business whilst it is still solvent; it does not need to be insolvent in order to close it. A solvent limited company is one that has the ability to repay any money owed within a 12-month window. However, you will need to follow a different process, and there are two main options depending on the company’s eligibility requirements.
Voluntary strike-off / dissolution process
If your business is solvent, whilst you may not have much money in the business, you will have no debts to pay off to either HMRC, staff or suppliers. In this instance, striking off is likely the quickest and easiest way to close the company. It is possible to dissolve the company even if it has debts, but you will need to notify creditors who will then have a three-month period in which they can contest it.
The business must not have traded for three months prior to the dissolution, and once this happens, it will be removed from the Companies House register and will no longer exist.
Members’ Voluntary Liquidation (MVL)
This can be the most tax-efficient way of closing a limited company if the sale of business assets can pay creditors their owed money and leave a minimum of £25,000 for the shareholders.
The member’s voluntary liquidation process would see the assets being sold off and realised, with the funds generated used to repay the creditors in full. The leftover monies would then be distributed to the shareholders before the business is formally removed from Companies House.
Shareholders will also be able to take advantage of Entrepreneurs’ Relief (or Business Asset Disposal Relief) which offers certain tax advantages. Your accountant will be able to provide further information on this.
What are my options for liquidating an insolvent company?
Creditors Voluntary liquidation
The most efficient way to close an insolvent business is through a creditor’s voluntary liquidation. In a CVL, all unsecured company debts will be written off, providing they meet the required criteria. This method is often preferred by company directors as it provides more control over the timescale and you’ll also be able to choose a liquidator.
A creditor’s voluntary liquidation will put you in the best position as a director, as it shows you are acting within your director’s duties.
A compulsory liquidation is always forced upon a limited company by a creditor. Initially, the creditor will attempt to recover the money from you. If they are unsuccessful, they can order a winding-up petition. You will be given a court date, and if the outstanding debts are not paid by this date, you will be forced into compulsory liquidation.
This form of liquidation is always best avoided. It shows that you have not acted responsibly as a company director and therefore can leave you at risk of more director scrutiny. The insolvency practitioner will closely assess your actions in the last few years leading up to insolvency. If any director misconduct is identified, you could land yourself in trouble.
What are the director’s liabilities when a limited company liquidates?
The status of ‘limited company’ should be enough to protect the company’s directors from having any personal liability for the debts incurred by the business. However, if there is any wrongdoing such as continuing to trade whilst insolvent or other wrongful trading has taken place, the directors might be liable.
If any personal guarantees were signed to source funding for the business or there is an overdraft owing on a director’s loan, the directors can be liable for this too.
What if my company has ceased trading?
A company that has ceased trading has stopped exchanging goods and or services, may have made employees redundant and may have also started selling company assets. This could be done for many reasons including company insolvency, director retirement or a director simply deciding that the business is no longer viable or what they want to pursue. This type of company may also be referred to as a dormant company.
Can I strike off a dormant company?
A company strike-off/dissolution is the voluntary legal closure of your business. This is achieved by submitting a written application to Companies House, together with the associated fee. Once the application has been processed, then the company will be removed or ‘struck off’ from the register.
Before you decide to apply for dissolution at Companies House, you must ensure that you have no company debts and no outstanding legal or insolvency procedures and that the limited company has not traded for at least three months.
If you are found to have struck off a company with debts, you will face issues. Dissolved companies can be reinstated for up to 20 years after being removed from the Companies House register.
Is there any way I can avoid liquidation?
If you wish to continue trading even though your business is insolvent, there are some options available to you, but they must be followed closely. These options include:
Company restructure or restart
Closing the business might seem like the only option sometimes, but there might well be other avenues to explore, such as restructuring. This could enable you to carry on trading in a more profitable way and avoid permanent and complete closure. Alternatively, the business might be well-suited to a restart as a new limited company with a different trading name. The company name could potentially be very similar, but there are strict regulations to follow.
This can protect your business from creditors whilst administrators take control of your business. An investigation will be conducted to see if all or parts of the business can continue trading viably. This could entail a pre-packaged sale, Company Voluntary Arrangement (CVA), refinancing or even a combination of them all. If none of these are possible, it may result in the liquidation of your business. Find out about liquidation vs administration.
This process will enable your business to set up affordable repayments to creditors over a five-year period and is known as a Company Voluntary Arrangement (CVA). This can only occur if the business is still a going concern and will necessitate the agreement of the creditors to which the debts are owed.
You will have various liquidation options available to you depending on your company’s financial position. Once the liquidation is complete, your business will be taken off the register at Companies House.
Next steps: How to close a limited company in the UK
Some directors may have enough money to pay for their insolvency proceedings. Others may need to check their eligibility for director redundancy pay. If you have been in full-time employment in the insolvent company for over two years, you may be able to make a claim. You should be aware that you cannot make a claim using the voluntary strike-off method.
We hope this article has been useful on how to close a limited company in the UK. If you believe your business is at risk of closure, get in touch with the experts at 1st Business Rescue. Seek professional advice from 1st Business Rescue on the best course of action, and you might find that there is an alternative which will keep your company alive.
If closure is the best solution, we will help you to navigate this path in order to execute the process in the best way for you and your business. We are your trusted support that will be with you every step of the way.