Advice on closing a company with debts

Can I close a company with debts and start again?

As the director of a company which is failing due to financial difficulties, you may be considering liquidation in order to start up a new business, free from the worry of unmanageable debt.

For more information on your options for closing a business, please visit our main Closing a Limited Company page.

Firstly, before committing to liquidating your current company, you should take the time to understand whether its fortunes could be turned around through a process of restructuring or refinancing. Just because a company is struggling to repay its debts, does not mean that the company is beyond rescue. Many companies are able to recover from this position and go on to have successful futures. However, this is only possible if you take action during the early stages of financial distress and put a workable plan in place to help turnaround the company's situation.

If you are experiencing debt problems with your company, you are far from alone. During their lifetime, many businesses will experience some form of financial distress. For some this may take the form of a short-term cash flow issue which is quickly resolved; for others, the situation may require professional help from a corporate insolvency professional such as a licensed insolvency practitioner. 

Can you liquidate a company with debts?

It is possible to liquidate a company with outstanding debts. The reality is that sometimes the debt problems of a company will take it beyond the point of rescue. In these instances, it may be the best solution for all concerned to look at ways of closing the company and bringing its affairs to an orderly end by way of a formal liquidation process. 

An insolvency practitioner will be appointed to handle the liquidation process on behalf of the company; they will liaise with creditors, ensure company debts are repaid as far as possible, before having the company dissolved at Companies House. As liquidation requires the professional input of a licensed insolvency practitioner, there are fees involved in putting your company through this process, however, in many cases these can be covered by using the assets of the company.

You can read more about the costs involved in liquidation by reading our Real Business Rescue liquidation costs guide. 

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Can I close a company with debts and no assets?

If you are looking at liquidation, you may be worried that the company does not have enough assets to cover the liquidation fees.

The first thing to note is that your company may have more assets than you think. Company assets include a number of things such as cash at bank, unpaid invoices due in from customers, machinery and equipment, company vehicles, and property.

However, if your company has:

• No cash in bank
• No equipment worth selling
• No debtors owing you money
• No stock or inventory

There may still be ways of closing your company through liquidation. Our insolvency practitioners have dealt with hundreds of directors who believe they do not have the funds to liquidate their insolvent company, however, we will always work alongside you to explore every potential avenue. In the past, we have been able to help directors pay their liquidation fees via the following methods:

• Claiming director redundancy pay and using this to cover the liquidation fees
• Negotiating payment plans in certain circumstances
• Directors using personal funds. While this may not be ideal, ensuring you liquidate your company via the correct channel once it becomes insolvent can protect you from incurring a much larger liability further down the line.

What are the options for closing a company with debts?

1. Creditors' Voluntary Liquidation (recommended)

A CVL is a director-initiated process which allows the director of an insolvent business to voluntarily cease trading and appoint a liquidator which must be a licensed insolvency practitioner to liquidate assets. As part of the liquidation process, the insolvency practitioner will liaise with any creditor claims, deal with employees, sell assets, and issue the required reports to government agencies. The funds realised from this will be used to pay for the liquidation process and any remaining funds will be used to pay creditors.

• Even with no assets, a Creditors' Voluntary Liquidation (CVL) is still the correct legal route for insolvent companies
• Cost: £4,000-6,000 typically
• Protects you from accusations of wrongful trading
• Demonstrates responsible directorship

2. Wait for compulsory liquidation (NOT recommended)

While the process of Compulsory Liquidation is much the same as a CVL, it differs in that the company is essentially forced to enter liquidation via a creditor initiated winding up petition rather than the directors triggering this process on their own accord. A company can be forced into compulsory liquidation by a disgruntled creditor when all other methods of debt recovery have failed. 

• Creditor may force you via winding up petition
• Official Receiver investigates more thoroughly
• Higher risk of personal liability findings or disqualification
• You lose all control

3. You cannot use Strike Off/Dissolution if your company has debts.

• Strike-off is only for companies with NO debts
• Creditors will object and block the application
• Companies House will reject it
• Attempting this while insolvent can lead to becoming personally liable for company debts

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Does liquidation write off company debts?

Liquidation can be used to essentially write off some company debts. After a limited company is liquidated, it ceases to exist as a legal entity. This means that any debts which were not able to be repaid through the sale of company assets will be written off as part of the liquidation process.

There is, however, an exception to this. Any company borrowing which you have secured with a personal guarantee will not be written off and will remain active. Crucially, the responsibility for repaying them will switch to the individual who provided the guarantee. 

Can I reuse a company name after liquidation?

Once a company has been liquidated, its directors, unless they have been subject to a director's disqualification order, are typically free to set up another limited company if they wish.

In the event of liquidating a company with debts and incorporating a new company, there are a number of legal requirements and restrictions which need to be taken into consideration particularly when it comes to using the same or a very similar name.

You can read our guide to reusing a company name after liquidation in our dedicated guide.

How Real Business Rescue can help

If liquidating your business and starting afresh is the best possible option for your business, the next step is to appoint an insolvency practitioner. Once the commercial debt has been written off, you can focus on building a new business, taking into account previous lessons learnt from operating your old business.

At Real Business Rescue we offer:

• Free, no-obligation initial consultation
• Partner-led service from licensed insolvency practitioners
• 100+ offices nationwide for face-to-face meetings if required
• Same-day appointments over the phone
• Exceptional customer service accredited by the Customer Service Excellence Award

If you would like to speak to a Real Business Rescue expert about the liquidation of your company, call one of our licensed insolvency practitioners. We can arrange a free same-day consultation at a nationwide network of UK offices across the country.