Companies will close for two main reasons: the shareholders no longer wish to continue with the business, or the business is no longer viable.
Closing a business isn’t as easy as ceasing to exist though, and there are two different routes available. One is striking a company off, and the second is liquidation.
Understanding the differences between the two can make the process a lot easier to manage and also stop you getting in trouble, especially if you have taken a Bounce Back Loan. So, in this article, we’ll walk you through the main points.
Striking a company off
To strike a company off from Companies House, it must be debt-free and meet several conditions for the dissolution to be successful:
• No trading or business activities other than concluding the company’s affairs and preparing to strike the company off have taken place in the three months before the dissolution
• The company has not changed its name in the last three months
• No insolvency proceedings, such as liquidation, are taking place
• There are no outstanding agreements with creditors, for example, HP agreements or leases
• There’s no outstanding legal action against the company
• Employees and creditors have all been paid in full
Dissolving a company is considered an informal process, with very little administration involved. However, all, or the majority of the company’s directors, must sign a DS01 form, send it to Companies House and pay the £10 administration fee.
The company will then receive a letter from Companies House to inform them they’ve filled in the form correctly, and the intention to strike the company off will be published as a notice in the local Gazette.
If there are no objections to the notice within two months, the company will be struck off the register.
A second notice will then be published in the Gazette, meaning the company has been dissolved and ceases to exist.
Striking a company off with debt
Companies House has made it clear that striking a company off that has unpaid debts is no alternative to a liquidation, new rules are coming in to close this loophole that has been used by directors for many years.
However, if your business has stopped trading and has no way of recovery or of paying back the creditors and there are no company assets then you could inform all of your creditors in writing about your intention to strike the company off. You would do this before the strike off takes place and we advise that you send them the DS01 form and also invite them to wind your business up, should they wish to. Its highly likely that if there is little hope of recovering any money that the creditor will allow the strike off to happen and your business will be dissolved still owing money. Be warned that if you do not follow the process correctly and send all your creditors that you intend to strike the company off in writing then you could face serious consequences down the line. Any one of your creditors could apply to reinstate the company and resume their debt collection process.
Please note- you will not be able to strike a company off that still owes a Bounce Back Loan as the bank will be unable to claim on their guarantee from the government unless the company has entered into a formal insolvency process. If you have had your company struck off from Companies House and you still owe a Bounce Back Loan the bank will reinstate the company to the register and continue to pursue the company for the outstanding money owed.
There are three types of liquidation, two voluntary and one compulsory. While all seek to achieve the same result (the closure of a company) and require the assistance of an insolvency practitioner, each process is different and depends on the company’s financial position at the time of liquidation.
The three types of liquidation are:
1) Creditors’ Voluntary Liquidation (CVL). A voluntary winding-up of an insolvent company because the business cannot pay its debts. A licenced insolvency practitioner must be appointed to liaise with creditors and take appropriate actions to sell the company’s assets, collect any outstanding debts, handle employee claims and strike the company from Companies House.
2) Compulsory liquidation (CL). Often referred to as ‘winding up by the court’, this is by far the most extreme action that can be taken against your company. A winding-up petition (WUP) is a legal notice issued by a creditor to a company that owes money. It will often follow a statutory demand or county court judgement (CCJ) and is a final demand to force payment or force the debtor company to close. If the debtor company cannot pay the outstanding debt, the court will place the company into compulsory liquidation.
3) A Members’ Voluntary Liquidation (MVL). A solvent liquidation (the company can pay its debts in full). This is typically used when shareholders wish to retire, release their investments or simply wind up the company.
How long will it take to liquidate a company?
There are several variables to consider in each of the three types of liquidation, so the timescales can vary.
In voluntary cases, once a liquidator has been appointed, they will act immediately if sufficient information has been provided. A business can be placed into liquidation within three to six weeks. From start to finish, the whole process will take around a year, but this will be longer for larger companies.
With a compulsory liquidation case, the time between the winding-up petition being issued and the court hearing the case is usually around three months.
Can I liquidate my company myself?
No. You cannot liquidate a company yourself. Under UK law, an insolvency practitioner must be appointed. This is to ensure that a just and fair process is followed, including valuing the company’s assets correctly, if there are any and treating creditors equally. It also allows directors to be scrutinised and the required course of action followed if they’re found to have acted unlawfully.
Need more advice?
If you’re thinking about closing your company and would like to discuss the options, get in touch with our team of experts for some free impartial advice.