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Closing a company with debts and no assets
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Liquidate a company with liabilities and assets
In the UK, strict rules exist around the closure of limited companies, and a key element is whether or not the company has debts. Solvent companies that can repay their debts in full are able to close down via dissolution, or a formal process called Members’ Voluntary Liquidation (MVL).
Directors need to take great care when establishing the financial position of their business, however, as if the wrong closure method is used they face serious sanctions including disqualification.
An insolvent company must be closed via Creditors’ Voluntary Liquidation, or CVL. This process uses the sale of business assets to repay creditors as far as the proceeds allow, but what happens if your insolvent company has debts but no assets, and needs to close down?
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If your company doesn’t own any assets that could be sold for the benefit of creditors, it may still be possible to use Creditors’ Voluntary Liquidation. Although CVL is a formal process that incurs professional fees, if you and your fellow directors can fund the process yourselves, taking this route helps you fulfil your legal duties to creditors.
No asset liquidations typically incur lower fees than those involving multiple assets. This is because the business’ affairs are simpler to deal with, which significantly reduces the practical and administrative aspects of the process.
A company enters Creditors’ Voluntary Liquidation by calling a shareholders’ meeting to pass a special resolution. The resolution must receive at least 75% of shareholder votes (by value of shareholding) in order to be passed.
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Another potential way to pay for a Creditors’ Voluntary Liquidation if your company has debts and no assets is by claiming director redundancy. If you or other directors have worked for the limited company for two years or more, you may be entitled to make a claim.
Other conditions apply if you’re considering your eligibility for director redundancy, including:
- Receiving a regular salary under PAYE
- Working under a written, oral, or implied contract of employment
- Working for 16 hours per week or more
- Fulfilling a role that’s more than just advisory
- Being owed money by the company, such as your initial investment
The right to claim director redundancy isn’t widely known, but Real Business Rescue can help you determine your eligibility for redundancy pay and other statutory entitlements as a company director.
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If the situation is such that you cannot claim redundancy pay to cover the cost of a no asset liquidation, and are unable to fund the process personally, it’s likely that you’ll have to wait for a creditor to forcibly wind up the company.
This introduces considerable risk of misconduct or wrongful trading allegations, however, and although it doesn’t incur a cost to the business, it does represent a potential cost in other ways to yourself and any fellow directors.
This is because the Official Receiver conducts stringent investigations into why the company declined during the time leading up to insolvency, and can make directors personally liable for some of the business’ debts under certain circumstances.
For more information on closing a company that has debts but no assets to sell, please contact our partner-led team. Real Business Rescue are insolvency experts and can provide the independent, confidential professional advice you need at this time. We work from a nationwide network of local offices and can also offer you a free, same-day consultation, to move the situation forward as quickly as possible.
Further Reading on Closing a company with debts and no assets
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