Sharon McDougall - 21st January 2025 - 3 minutes to read
One of the benefits of running a private limited company (LTD) or limited liability partnership (LLP) is that you can close the company and not become personally liable for its debts. As a company director, you can initiate a Creditors’ Voluntary Liquidation (CVL) to close the business. Creditors (parties you owe money to) will be repaid as much as possible and any remaining debts will be written off.
If your company is in financial difficulty and you’re under intense pressure from your creditors, you might feel that your only option is to close it down. However, if you believe your business is still viable, there are other avenues to explore.
That’s just an example of some of the options available to you. The point is that just because your company is struggling with debt, it’s not necessarily beyond rescue. Before closing your company, you should contact a business debt expert to discuss whether your company can be saved.
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If your company can repay its debts before you close it down, the Voluntary Dissolution procedure, also known as Company Strike Off, is the easiest way to do it. You can apply to Companies House online to dissolve the business, and as long as you meet all the requirements, your business will be struck off the Companies House register after around three months.
If your company cannot pay its debts before closing, it’s insolvent. There are two routes into liquidation for an insolvent company. You can close the company voluntarily by entering into a Creditors’ Voluntary Liquidation or wait for a creditor to force you into Compulsory Liquidation.
Creditors’ Voluntary Liquidation
You can put your company into a CVL by ceasing trading and appointing a licensed insolvency practitioner to act as the liquidator. They will take charge of the company, deal with the employees and invite creditors to make claims for the money they are owed. They will then sell the business’s assets and use the money raised to repay the creditors as much as possible. They will also file the relevant reports with government agencies before closing the company.
The benefit of closing the company voluntarily is that it shows you are serious about meeting your legal duties as a company director and acting in the best interests of your creditors. That reduces the risk of allegations of misconduct and wrongful trading, which could lead to negative consequences for you personally. You could also be eligible to claim director’s redundancy pay.
Compulsory Liquidation
Compulsory Liquidation is another way to close a company with debts, but it comes with greater risks than a CVL. Rather than liquidating the company voluntarily, you wait to be forced into liquidation by a creditor who has obtained a court order against you. A creditor, most commonly HMRC, will see this as a last resort after making multiple failed attempts to recover the debt.
This approach can lead to a less favourable outcome for all parties, including you as a company director. The liquidator will investigate the reasons for the company’s failure and your conduct leading up to the insolvency. If the liquidator finds evidence of misconduct, wrongful trading or fraudulent trading, you could be made personally liable for some or all of the company’s debts. You may even be disqualified from acting as a director in the future.
When you liquidate a limited company with debts, the debts that the business cannot repay are wiped out as part of the process. However, there are some exceptions. If you have signed a personal guarantee for company borrowing that the business cannot repay, the creditor can pursue you personally for the debt.
You can also be made personally liable for company debts if you have not acted properly when running the business. That’s why it’s so important to act swiftly if your company is in debt and to seek professional advice.
If your business has unmanageable debts, we can help you understand your options and close the company in a way that protects the interests of your creditors and you as a company director. Contact our business debt experts today for a free consultation.
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Business Debts in ScotlandAdministration is an insolvency process that provides breathing space for companies struggling with debt, giving them the time needed to establish a plan going forwards. With several options potentially available at the end of administration, it’s an effective step for many businesses.
Find out MoreA Company Voluntary Arrangement (CVA) can help a company to escape debt by negotiating a formal payment plan with creditors allowing for reduced monthly repayments. Directors retain full control of their company during a CVA and the business is allowed to continue trading throughout.
Find out MoreCompulsory Liquidation is a formal insolvency procedure used to close down limited companies that cannot pay their debts.
Find out MoreWhen a limited company becomes insolvent, it’s important for directors to place the interests of creditors first and do all they can to minimise further losses. Creditors’ Voluntary Liquidation (CVL) is an insolvency process that allows this to happen, and ensures directors comply with strict insolvency laws.
Find out MoreA Debt Arrangement Scheme (DAS) lets you pay off your debt through a series of manageable instalments over a reasonable length of time.
Find out MoreMembers’ Voluntary Liquidation (MVL) allows you to close your business and extract the profits in a tax-efficient way. It’s a process that’s available to solvent limited companies, and requires you to make an official Declaration of Solvency prior to commencement.
Find out MoreSequestration is the Scottish version of bankruptcy and may be suitable for you if you do not have the money to pay back your debts
Find out MoreA Trust Deed involves making a monthly contribution to your debts for up to four years. After this time any remaining debt included in the Trust Deed will not need to be paid.
Find out MoreSharon McDougall
Manager
If you’ve decided it’s time to close your limited company, there are several different routes you can take. The most appropriate closure method will depend on whether your business is solvent (can...
If your company is experiencing financial difficulties, it is important to determine the extent of the problems being faced so that a plan can be put in place to turn the situation around. One of your...
If you’re having difficulty paying your debts and have assets or a regular income, you may qualify for a Trust Deed.
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Sequestration is the Scottish version of bankruptcy and may be suitable for you if you do not have the money to pay back your debts
Find out MoreA Trust Deed involves making a monthly contribution to your debts for up to four years. After this time any remaining debt included in the Trust Deed will not need to be paid.
Find out MoreA Debt Arrangement Scheme (DAS) lets you pay off your debt through a series of manageable instalments over a reasonable length of time.
Find out MoreWhether you are a sole trader or a limited company director, we can help you work through your current financial problems including money owed to HMRC
Business Debts in ScotlandOur Insolvency Practitioners are regulated by ICAS or the IPA and our firm is authorised and regulated by the Financial Conduct Authority
We have FCA authorisation for advice relating to Debt Arrangement Schemes and we are regulated by the ICAS and IPA when giving advice as an insolvency practitioner leading to our appointment in formal insolvency proceedings
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