Can I close a company with debts?

What’s the process and are you personally liable for the debts?

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.

What are your options if your business is struggling financially?

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. 

• If you have tax debts you cannot pay, you may be able to negotiate a Time to Pay (TTP) arrangement with HMRC. That will allow you to continue trading and repay what you owe over a typical period of up to 12 months.
• If you have cash flow problems, alternative funding such as invoice finance or a merchant cash advance could provide a quick cash injection. 
• A Company Voluntary Arrangement (CVA) is a formal agreement with your creditors to repay all or a proportion of your debts over time. It freezes interest and charges on your debts and you make a monthly payment towards them while you continue to trade.

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.  

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. 

Will I have to repay company debts personally?

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. 

How can we help?

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.