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How To Wind Up A Limited Company

Written by Keith Steven Managing Director 1 September 2021

How To Wind Up A Limited Company

Winding up your company is something that you may not want to think about, but there will come a time when you have to consider it since it is the only option left. It basically means closing your company and removing it from the registrar at Companies House. We discuss here how you can wind up your company, touching on the different options.

How to wind up a limited company, as well as the attached rules and regulations, differ, depending on whether your company is solvent or not.

It is important to know that for all winding up procedures, shareholders must attend a meeting, where they vote and 75% of shareholders must agree, for a winding up resolution to be accepted. Then,

  1. Insolvency practitioners are appointed
  2. The resolution must be sent to Companies House within 15 days
  3. The Gazette must advertise the resolution within 14 days.

Winding Up A Solvent Company

If the company can pay all debts owed to creditors before closure, the procedure of winding up is simpler. You have two options:

  1. Company Dissolution: When the company has ceased trading for 3 months, you can fill in a ‘DS01 Striking off application’. This then goes through to Companies’ House, who, if agreed, will close the company and remove it from the register. 
  2. Members Voluntary Liquidation (MVL): This is usually the option taken when directors wish to retire or just simply end a business’ life. A declaration of solvency should be made. This includes the confirmation that the company can settle all debts within 12 months of the liquidation date. A licenced insolvency practitioner is appointed, to turn the company’s assets into cash and then distribute the profits from this to members. For more information on an MVL, see here

Note that to 'wind up' a solvent company, the term 'striking off' is often used. Be aware there is a difference. If you wish to use the company in the future, but just not right now, then the company is dormant, only if you wish to end the companies life wholly, should you go down the dissolution process. There is criteria to follow for dissolution, explained in our guidance page here.

Winding Up An Insolvent Company

If a company cannot pay its debts, then the company may need to be wound up. There are two options:

Compulsory Liquidation:

Creditor action forces closure following the issue of a winding up order if the company cannot respond to the demand by paying the debt off or negotiating. Additionally, directors can apply to the court for this. You must be able to prove that the company cannot pay its debts of over £750 and show the shareholders’ approval.  A statutory demand is involved here.  An official receiver is appointed for distributing the company’s assets for cash, to help pay off the debts. The creditors have priority here over any members’ dividends. Note, if a statutory demand is issued and you can settle the debt within 7 days, it does not escalate to company liquidation.

Creditors Voluntary Liquidation:

Creditors will vote on the decision to wind up a company. If 75% agree, then the winding up will begin. This involves the process described above (appoint an IP,  send a resolution to Comapnies House within 15 days and then have it advertised in The Gazette by 14 days following). A licensed insolvency practitioner will be employed to help and ensure the correct distribution of the liquidated assets. This is usually done to avoid further debts of the company and reduce the risk of personal liability. Creditors interests take priority here. Note that in this case, company directors have control over when and how the company will liquidate. 

After the winding up process, the company ceases trading and no longer employs people. After being removed from the Companies’ House register, the company is no longer in existence.

What if I am threatened with a winding up petition?

If you are sent a winding up petition, you must act immediately. If you do not, the petition may be advertised which can result with your bank account being frozen. This brings consequences for the continued operation of the business.

What if I am chasing a debt and wish to wind up the limited company?

If this is the case, you must be very careful. Issuing a winding up petition should be a last resort. You must have the debt proven and not in dispute. Additionally, there are large costs attached to issuing a petition (up to £3000!), so therefore it is best saved for large debts.

What does liquidation mean for directors?

Linked to winding up petitions is liquidations, since assets are turned to 'liquid' cash to try and pay off debts and creditors.  There are implications here for directors:

  • After the appointment of a licensed insolvency practicioner, the directors loose control on the company and all of its assets
  • After the appointment of a licensed insolvency practicioner, the director cannot act on any behalf of the company
  • The director(s) will need to co-operate with the licensed insolvency praciticioner and liquidators providing any information needed
  • Depending on how the director(s) has behaved, they may be banned from being a company director for a period of two to fifteen years
  • The need to put creditors interests at the heart always

Note that due to the Covid-19 pandemic you cannot issue a winding up petition to a company that has been affected by lockdowns until 30th September 2021

One last message

In essence, if you are considering any action to wind up a company then you must take advice, preferably from an insolvency practitioner. We are licensed insolvency practitioners and you can call us on 08009700539

Categories: Liquidation, What is Creditors Voluntary Liquidation CVL

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