If you need to close your limited company, how you proceed will depend on whether it is solvent or insolvent, as your company’s solvent position affects the procedures available. As a director, you should always be aware of your company’s financial state, including its solvent position.
If you’re concerned that your company could be insolvent, you should speak to a licensed and regulated insolvency practitioner as soon as possible.These professionals can carry out the appropriate procedure. By seekingtheir advice, you’re acting in the company’s best interests, and you’ll receive advice best suited to its situation.
Options for insolvent company closure
Your company is insolvent if it can’t afford to pay its bills and liabilities as and when they fall due, or those liabilities outweigh its assets. Companies can recover from insolvency, either by paying what they can afford through a formal, legally binding monthly repayment arrangement or through a company restructure.
If those options aren’t suitable for your situation, they’ve already failed to alleviate your company’s issues, your company is under unmanageable creditor pressure, or if you have other factors that would make them less effective, then closure may be the best way forward.
- Formally closing an insolvent company through a Creditors Voluntary Liquidation (CVL)
If liquidating your insolvent company is your best option, your insolvency practitioner will suggest that the company enter a Creditors Voluntary Liquidation (CVL). Liquidation will put a stop to all creditor pressure and legal action, and once the process concludes, all remaining unsecured debt is written off, allowing you, as a director, to walk away and start afresh. - Entering compulsory liquidation
Unlike voluntary liquidation, companies are forced into compulsory liquidation by their creditors. If the company owes more than £750, the creditor can file a winding-up petition to the courts. This can lead to a winding-up order, which, once advertised in the local gazette, can lead to the company’s bank freezing its accounts and forcing it into compulsory liquidation.
Options for solvent company closure
You can still close your company if it’s solvent and you wish to retire without a successor, or you feel that the company has reached the end of its useful life.
- Formally closing a solvent company through a Members Voluntary Liquidation (MVL)
An MVL is a liquidation process for solvent companies and can be a tax-efficient option if the company’s assets exceed £25,000. This would allowthe directors and shareholders to claim Business Asset Disposal Relief. It can also be faster than a dissolution.
An insolvency practitioner can assess your company’s position and advise whether an MVL is a suitable option.
- Company closure through dissolution
If the company is solvent but lacks the assets to justify an MVL, you can strike it off the Register of Companies at Companies House. Doing so will end its legal existence if it meets all the criteria that would allow it to close.While you can attempt to dissolve an insolvent company, outstanding creditors are likely to object to that attempt, which can restore the company.This can happen for up to six years after the initial dissolution.
In conclusion
How you close your limited company will largely depend on its financial position, including whether or not it is insolvent. If your company is solvent, you can close it through a dissolution, or a solvent Members Voluntary Liquidation (MVL) if it has the necessary assets to justify the process and potential benefits.If your company is insolvent, your best option would be to closeit through an insolvent Creditors Voluntary Liquidation (CVL), rather than letting the creditors wind up the company through compulsory liquidation.
Speak to a licensed and regulated insolvency practitioner to ensure that you receive the best advice for your company’s situation.
