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Closing down a limited company both solvent or insolvent

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Updated: 5th February 2020

How to close down a limited company whether it is solvent or insolvent

If you’re thinking of closing down your limited company, whether for reasons of ill-health, retirement or insolvency, you’ll need to follow specific procedures. Here is a brief outline of each process, and the reasons why you might be considering these various options.

Closing down a solvent limited company (dissolution)

Striking off the company voluntarily

If you meet these criteria, you can voluntarily have your company struck off the register at Companies House:

  • The business must be solvent – if it is found to be insolvent at a later date, directors could be held personally liable for the amounts owed
  • You have not traded or changed the company name within the last three months
  • No legal actions against the company are pending
  • There are no arrangements in place to repay historical debt - a Company Voluntary Arrangement, for example

All interested parties will need a copy of the application for strike-off, so that objections can be made if necessary. You’ll also need to carefully manage staff wages and redundancy payments, ensure all tax and National Insurance liabilities are settled, and close down any company bank accounts prior to dissolution.

Only when this has been done and company assets have been divided between the shareholders can you submit form DS01, which is the application for strike-off. A notice is then placed in your local Gazette, followed by another three months later, formally announcing the company’s dissolution.

Members’ Voluntary Liquidation (MVL)

A Members’ Voluntary Liquidation is often used when a business is no longer required – maybe because the director wants to retire, and there is no-one to take over control. The most important aspect of this process is establishing beyond doubt that the company is solvent, as a formal declaration of solvency needs to be signed before the company can be closed.

An application is made to wind-up the company, after which a liquidator will be appointed to inform Companies House and other interested parties. Once a notice has been placed in the Gazette and all business assets sold, the liquidator will call a final general meeting and send a copy of the liquidation accounts to the Registrar of Companies. 

Insolvent companies

Compulsory liquidation

If there are undisputed debts of more than £5,000, one or more of your creditors could apply to wind-up your company. The costs to them are high, and this is generally seen as a measure of last resort for a creditor who may have made several unsuccessful attempts to recover their debt.

You should receive a 21-day statutory demand for payment if this is the case. If the debt remains undisputed and unpaid, the demand then becomes proof that the debt exists. Once a petition has been issued, a hearing will be arranged even if a payment is subsequently made (outside the 21-day period).

Because of the nature of the closure, the Insolvency Service will investigate your conduct as a director. If any instances of wrongful or unlawful trading are found, you could be disqualified as a director for up to 15 years, as well as having to pay a hefty fine.

Creditors’ Voluntary Liquidation (CVL)

In contrast, a Creditors’ Voluntary Liquidation is instigated by the directors of a company that has entered insolvency. It can bring to an end a lot of worry and stress for directors who have been hounded by creditors, but who want to put creditor interests first.

Shareholders vote on whether to pass a winding-up resolution, and if 75% (by share value) agree, a liquidator is appointed and a meeting of creditors called. At the creditors’ meeting, the liquidator reads a Statement of Affairs to explain how the company has reached this financial position, and directors may be asked questions about their conduct.

Although the liquidator is obliged to look into your actions as a director in the time leading up to insolvency, because the process was initiated to maximise creditor returns, it is less likely that you will face the same penalties as with compulsory liquidation.

Real Business Rescue can provide the guidance you need if you want to close down your company. It is important that procedures are followed to the letter - we can help to ensure that nothing is missed, whatever your reasons for closing the business. We have an extensive network of 78 offices offering confidential director support across the UK.

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