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A quick guide on closing a company down

A quick guide on closing a company down

  Some can be similar but they are never identical because no two businesses are ever alike. Even if they are financially similar or facing some of the same issues, there are always other factors that differentiate between them.  This is why knowledge and experience always help when it comes to recommending the best course […]

 

Some can be similar but they are never identical because no two businesses are ever alike. Even if they are financially similar or facing some of the same issues, there are always other factors that differentiate between them. 

This is why knowledge and experience always help when it comes to recommending the best course of action for them to take. 

But a lot of firms who go on to be clients and others that choose a different path often ask the same question at the very start:

“How do you close a limited company down?”

We see that a lot of internet searches that bring people to our website start with this question or a similar one like “can you close a company with debts?” or “can I close my company online?” 

So we’ll do our best to answer it right here - how do you close your company down?


The thing to know is that any limited company can close down - whether it has debts or not. 

Sole traders operate slightly differently but this is the first fork the closing down path takes for us. 

If your limited company owes money to anybody (they’re known as creditors) then they can close down through either a Creditors Voluntary Liquidation (CVL) or a Compulsory Liquidation.

Creditors Voluntary Liquidation

If the business has too much debt to reasonably pay off then it or its creditors can appoint a liquidator who will help them close down but whose main role will be to protect the interests of the creditors.  

They will look to sell any company assets and use the money to pay off the debts.

The liquidator will deal with any creditors from day one and any legal actions against the company will automatically cease. 

Once the process is completed and the business is closed, directors will be free to move onto their next venture without any debts hanging over them. 

Compulsory Liquidation

A compulsory liquidation, or a winding up petition as it’s also popularly known is when a creditor decides to take the initiative themselves and go to court to try and close the company. 

This will force the sale of its assets so the creditors would then receive a proportion of the owed debts.

This is less favourable than a CVL for many reasons including that the creditors are in charge of the process, not the directors and that a business facing a winding up petition could see its bank accounts frozen, its suppliers stop providing services and possibly having their commercial leases terminated. 

Additionally the Official Receiver, who will be appointed by the court to oversee the process, will investigate the conduct of directors which could lead to fines, disqualifications and being made personally liable for specific debts. 

Businesses that are solvent and could repay their debts within 12 months if they closed have some other options.

The first is a Members Voluntary Liquidation (MVL).

An MVL is a process used to formally close a solvent company. 

Some might question why an insolvency practitioner has to be involved if the business can service its debts in a timely manner but their main purpose here will be to help the directors realise their assets more quickly by helping them dispose of them more quickly than they could themselves.  

As well as being a relatively quick, simple and efficient way of closing a business down, an MVL is also tax efficient as directors may be able to claim Business Asset Disposal Relief (BADR) which was previously known as Entrepreneurs Relief. 

This allows directors to pay a tax rate of 10% on asset disposals rather than the higher Capital Gains Tax rate although it’s always wise to seek advice from a tax professional in this situation.

A business that isn’t in debt but has owners that want to move onto something else and close it down also have another option called dissolution

A company dissolution, also known as striking a business off, is the simple formal action of removing the business from the Companies House.

It’s relatively straightforward and inexpensive to close a business that isn’t trading anymore or doesn’t have a feasible future but there are several specific conditions that have to be met in order to legally dissolve the company this way. 

Like any other method of closing down a business, directors should get some professional independent advice before pursuing this course of action or any that will lead to the end of their company’s trading life. 

We offer a free initial consultation for any business owner or director to take advantage of at their own convenience. 

An experienced advisor will offer a friendly ear to listen to what issues are facing the business then be able to work with them to outline the best steps to take next.

Although they sound and in some cases can be quite complicated, the different ways to close a company down are just different tools from the same toolbox. 

You wouldn’t use a hammer to tighten a bolt or a screw - and some methods can’t be used depending on the unique situation of the individual company but if you need or want to close down a business then there will be a solution for you to choose.

Business Rescue Expert is part of Robson Scott Associates Limited, a limited company registered in England and Wales No. 05331812, a leading independent insolvency practice, specialising in business rescue advice. The company holds professional indemnity insurance and complies with the EU Services Directive. Christopher Horner (IP no 16150) is licenced by the Insolvency Practitioners Association

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