Closing Your Business Options
Here is a list of options which will help you close down your limited company. It’s important you pick the right method to close your business depending on your reason for closing down to minimise financial impacts.
Liquidation Services
Creditors Voluntary Liquidation
By placing a company in Voluntary Liquidation, the Directors are stating that the company is insolvent, and the business is no longer viable.
The company is therefore closed, assets are sold, and distributions (if any) are made to the creditors.
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Members Voluntary Liquidation
Members Voluntary Liquidation (MVL) is a tax-efficient method for a solvent company to be liquidated and closed.
It may be that a solvent company has come to the end of its natural life, or that the Director(s) are retiring etc. However, an MVL can also be used if the sale of the assets of a company will pay off all creditors in full and will leave at least £5,000 to be distributed to shareholders.
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Directors and Redundancy
Director redundancy occurs when a director’s role becomes redundant as part of the liquidation process. This situation is particularly relevant in MVLs, where the company is solvent but chooses to close, possibly due to retirement, restructuring, or other strategic reasons.
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Dissolve a Company (Strike Off)
Striking off or dissolving a company is a formal process that signifies the cessation of a limited company’s legal existence by removing its name from the Companies House register.
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Winding Up Petition
This occurs when a company cannot afford to pay its debts and a creditor (or multiple creditors) takes legal action in order to obtain the money owed. They can apply to the court for the company to be wound up. If this happens a liquidator will be appointed by the court, and they will close the company down with immediate effect.
Read MoreQuestions & Answers about Closing Down a Limited Company
When closing down a limited company, there are several important questions to work out. It’s always advisable to consult with legal and financial professionals during this process to ensure compliance with all regulations and to handle the process efficiently.
What is liquidation?
Liquidation is a critical process for businesses facing financial distress. It involves the dismantling of a company’s structure, with its assets being sold off to pay creditors. This process can occur either because a company is insolvent and cannot pay its debts or as a strategic decision by solvent companies looking to close down operations in an orderly manner.
Can I Liquidate My Company Voluntarily?
Yes, you can opt for a voluntary liquidation. This process, known as a Members’ Voluntary Liquidation (MVL) for solvent companies or a Creditors’ Voluntary Liquidation (CVL) for insolvent companies, allows directors to proactively manage the closure of their business. Voluntary liquidation can be a strategic step to minimize financial repercussions and legal complications.
How Do I Know if My Company is Insolvent?
Determining insolvency involves assessing whether your company can pay its debts as they fall due or if its liabilities exceed its assets. Warning signs include cash flow difficulties, creditor pressure, and legal notices. It’s crucial to seek professional advice to accurately determine your company’s financial position.
What is the Process for Closing Down a Business?
Closing a business, particularly in the context of liquidation, requires several steps. It starts with a resolution to wind up the company, followed by appointing a licensed insolvency practitioner. The liquidator takes control of the company, sells assets, pays off creditors, and finally, the company is removed from the Companies House register.
Can I Start a New Business After My Current Company Goes into Liquidation?
Starting a new business after liquidation is permissible. However, there are restrictions, particularly if the previous company was insolvent. These restrictions aim to prevent unfair advantages or the repeat of past mistakes. Careful planning and legal guidance are essential in this situation.
What Happens to Company Assets, Contracts, and Ongoing Projects During Liquidation?
During liquidation, the appointed liquidator takes control of the company’s assets. These assets are then sold to repay creditors. Contracts and ongoing projects are typically terminated, though some may be sold or transferred as part of the liquidation process. It’s a complex situation that needs careful handling to ensure legal and financial compliance.
Can I close down a solvent limited company?
Yes, a solvent limited company can be closed down. This is typically done through a Members’ Voluntary Liquidation, where the company’s assets are more than sufficient to cover its liabilities. This process involves settling all debts, distributing any surplus funds to shareholders, and then formally dissolving the company.
How Do I Close a Company That Has Never Traded?
Closing a company that has never traded, also known as a ‘dormant company’, can be simpler. A Declaration of Solvency is usually not required. However, you’ll still need to ensure all legal and tax obligations are fulfilled before applying for strike off at Companies House.
Authorised by the Insolvency Practitioners Association
Members of the Association of Business Recovery Professionals (R3)
Member of Association of Chartered Certified Accountants
Member of the Institute of Chartered Accountants in England and Wales
Company Liquidation: Glossary
Here is a list of keywords with their description to help you understand the insolvency industry.
A
Arrears
This means being late on payments. If you owe money and haven’t paid on time, you are in arrears.
Asset
Anything valuable that the business owns. This could be physical things like buildings or cars, or non-physical things like trademarks.
B
Bankruptcy
A legal status when a business cannot pay their debts. It involves selling their things to pay back what they can, but it also means they get some relief from their debts.
C
Creditor's Petition
A legal step taken by a creditor you owe money to, asking a court to declare you bankrupt because you haven’t paid them.
Cessation
Act of stopping or ending something, like business operations.
Company Voluntary Arrangement (CVA)
CVA is an agreement where a company in financial trouble makes a plan to pay back some of its debts over time while continuing to operate.
Creditor
A person or company that is owed money by someone else.
Creditor's Voluntary Liquidation (CVL)
A Creditors’ Voluntary Liquidation (CVL) takes place when a company can no longer pay its debts and there’s no chance of the business recovering. The directors may then decide to ‘voluntarily’ apply for liquidation, also known as Creditors’ Voluntary Liquidation (CVL).
Compulsory Liquidation
Court-ordered company closure due to inability to pay debts.
D
Debtor
A debtor is a person or business that owes money to someone else.
Declaration of Solvency
Statement by directors that a company can pay its debts.
Dissolution
Legally closing down a company.
Dissolved
Company officially closed and ceased to exist.
F
Form DS01
Form that needs to be completed to apply for striking off a company from the register in the UK.
G
Gazette
Official public journal where legal notices like company liquidations are published.
I
Insolvent
State where a company cannot pay its debts when due.
Insolvency Proceedings
Legal processes for dealing with debts when a company can’t pay them.
L
Liquidation
Closing a company and distributing its assets.
M
Members Voluntary Liquidation (MVL)
Solvent companies closing down and distributing assets.
S
Striking Off
Removing a company from the Companies House register.
Statement of Affairs:
Detailed report showing a company’s assets, debts, and financial information, usually in insolvency cases.
W
Winding-up Petition
Creditors forcing a company to close.
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About My Business Support
My Business Support offers a wide range of services, from helping clients stabilise their cash flow by preparing financial forecasts, negotiating with key creditors or raising funding, to undertaking formal insolvency appointments for businesses under more severe financial pressure. We also provide advice and guidance on fraud to help our clients both prevent, detect and prosecute fraudulent activity.
Articles
What Happens to Directors During Company Liquidation
When your business is going through the liquidation process, your new responsibility as a director will be to assist the insolvency practitioner in the process....
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What is a Declaration of Solvency
A declaration of solvency is a formal statement made by a company’s director(s) to confirm that the company is solvent, allowing it to proceed with...
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What is a Distribution in Specie?
A distribution in specie refers to the direct transfer of company assets in their physical form, rather than converting those assets into cash before distribution....
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