When and How do I Close my Company?

When and how to close my company

While starting a company is a dream to many and can be an extremely rewarding experience, by its very nature, it can throw a lot of curveballs your way. Some of these could be minor niggles, while others may require more drastic action to navigate and even force you to reconsider your position as a company director.

So, if the latter of those scenarios applies, when and how would you close your limited company?

If the Company can Repay its Debts

As a company director, you may wish to step down or close your company due to changes in your personal or financial circumstances. For example, the company could be part of a larger group of affiliated companies amid restructuring, or you might just want to retire without a successor to take over running the company. 

If you’re a director in such a position, and the company is solvent with enough assets to cover its liabilities, you can apply to dissolve (strike-off) the company if its circumstances allow it. 

However, there may be a more beneficial option.

Directors of solvent limited companies, who can cover their liabilities and have more than £25,000 to distribute, can approach a licensed insolvency practitioner and apply for an MVL (Members Voluntary Liquidation).

An MVL provides a tax-efficient solution compared to striking the company off via dissolution, allowing you to close your company and claim Business Asset Disposal Relief (formerly known as Entrepreneurs’ Relief).

The Company has Debts that it cannot Repay

It’s vital that you stay on top of your company’s finances and identify when its outgoings begin outweighing its income. This could help you make the necessary changes that could stop the company from becoming insolvent.

Whether it’s due to a change of circumstances, a downturn in trade or a sudden bad debt, companies can find themselves unable to repay their liabilities when they fall due. 

Once your company enters the red, creditors may start asking for their money back. The action they can take ranges from reminder letters and phone calls to filing CCJs (County Court Judgements).

If the debt is greater than £750, the creditors can even petition to wind-up the company and force it into compulsory liquidation.

If your company’s debts are of such a level that cutting back on expenses isn’t enough to alleviate them, you must act before the situation worsens, or you run the risk of trading whilst insolvent, a charge which can have serious ramifications later. Depending on the company’s circumstances, including the level of debt, you may have several options.

Repaying what your company can afford may be an option, and arrangements such as Company Voluntary Arrangements (CVAs) can help companies pay back the affordable, unsecured debts.

Restructuring the company could also be an option; specifically, administration allows a licensed insolvency practitioner to restructure the company with the aim of returning it to profitability.

If repaying or restructuring isn’t feasible, the company’s best option to draw a line under the insolvency and allow you to move on would be closing it through a Creditors Voluntary Liquidation (CVL).

This process puts your company in the hands of a licensed insolvency practitioner, closing it in an orderly manner and ensuring the creditors get a greater return than if they were to pursue a winding-up petition and force the company into compulsory liquidation. Entering a CVL ceases all creditor pressure and legal action and allows employees to claim unpaid wages and redundancy pay from the government.

Upon completing the liquidation, the insolvent company closes, freeing you from its old debts, allowing you to start a new limited company should you wish.

Summary on How to Close my Company

If you need to close your company, its solvent position has a bearing on how you go about it. A company that’s solvent but no longer needed, or its directors wish to retire with no one to pass their duties on to, can close via an MVL (Members Voluntary Liquidation).

This arrangement allows the solvent company to close while providing a fast, tax-efficient release of its funds. The outgoing directors can also claim Business Asset Disposal Relief (formerly Entrepreneur’s Relief).

If the company is insolvent, it should be closed via a CVL (Creditors Voluntary Liquidation). Doing so pauses all creditor pressure while the company is closed and allows the directors to walk away and start afresh.