How can I close a solvent or insolvent limited company?
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 pay all its debts) or insolvent. There are also a few other factors to take into account.
How can I close my solvent company?
If your business can afford to repay all its debts before it closes, there are two options available:
- Voluntary Strike-Off
- Members’ Voluntary Liquidation (MVL)
These closure methods will achieve the same result, with the business being struck off the Companies House register and ceasing to exist as a legal entity. However, each procedure suits a different set of circumstances.
Closing my company via Voluntary Strike-Off
Voluntary Strike-Off, also known as dissolution, is an informal company closure process you can complete yourself. However, this process is only suitable for small companies with low-value assets. That’s because although it’s the cheapest way to close a solvent company, it’s less tax-efficient than a Members’ Voluntary Liquidation.
The first step is to prepare the company for closure. You can do that by:
- Ceasing trading
- Making employees redundant
- Selling or transferring company assets
- Preparing your final accounts and company tax return
- Repaying your creditors (including all tax liabilities)
- Closing your company bank accounts.
You can then apply to strike off your company online or by completing and submitting form DS01 to Companies House. The form must be signed by a majority of the company’s directors.
If you submit the form correctly and there are no objections to the company’s closure, the business will be struck off the Companies House register and cease to exist.
Closing my company via a Members’ Voluntary Liquidation (MVL)
The other way to close a solvent company is to use a formal liquidation procedure called a Members’ Voluntary Liquidation. This process is suitable for solvent companies with over £25,000 in assets, as it allows you to extract the value from those assets in a tax-efficient way.
In this case, you must appoint a licensed insolvency practitioner to act as the liquidator and close the company on your behalf. They will value and sell the assets, repay any outstanding creditors and distribute the rest of the proceeds to the shareholders. The final step is to strike the business from the Companies House register.
How can I close my insolvent company?
If your company is insolvent, meaning it cannot afford to pay all its debts before you close it, there are two liquidation procedures to consider:
- Creditors’ Voluntary Liquidation (CVL)
- Compulsory Liquidation
These two company closure methods are very different, as a CVL is voluntary while a Compulsory Liquidation is forced on the company by the courts.
Closing my company via a Creditors’ Voluntary Liquidation (CVL)
A Creditors’ Voluntary Liquidation is a formal procedure to shut down a company with outstanding debts it cannot repay. You initiate the process by appointing a licensed insolvency practitioner to act as the liquidator.
Like a solvent Members’ Voluntary Liquidation, the liquidator will identify and sell the company’s assets. However, in this case, the proceeds will be distributed among your creditors and any remaining debts will be written off. The business will then be struck off the Companies House register.
This process is usually preferable to Compulsory Liquidation as it reduces the risk of wrongful trading or misconduct allegations. That means you’re less likely to face serious repercussions such as personal liability issues or a directorship ban.
Closing my company via Compulsory Liquidation
Compulsory Liquidation is a different prospect altogether. This process is initiated by a disgruntled creditor who sends an application to the court. The creditor will want to close the company to prevent further debts and recover the money they are owed.
At the start of this process, you’ll typically be presented with a Statutory Demand for the repayment of the debt. If you ignore it, you’ll then receive a Winding Up Petition. If the court agrees with the petition, a liquidator will be appointed to sell the company’s assets for the benefit of its creditors before closing it down.
By waiting for a creditor to force your company into liquidation, the risks for you personally increase. You could unknowingly break UK insolvency laws and face allegations of misconduct and wrongful trading. That could lead to serious repercussions, such as being made personally liable for company debts or being banned from acting as a company director for up to 15 years.
How Scotland Debt Solutions can help
If you want to close your limited company but are not sure how, contact our advisers today to arrange a free, same-day consultation. We will discuss your circumstances with you and talk you through your options so you can proceed with confidence.
