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How To Wind Up A Limited Company

Written by Keith Steven Managing Director 24 July 2018

The process of winding 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’,http://www.companieshouse.gov.uk/forms/generalForms/DS01_striking_off_application_by_a_company.pdf. 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. A licenced insolvency practitioner is called in 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

Winding Up An Insolvent Company

If a company cannot pay its debts, then the company will be wound up by the court. An official receiver  is accountable for distributing the company’s assets for cash, to help pay off the debts. The creditors have priority here over any members’ dividends. There are two options:

Compulsory Liquidation:

Creditor action forces closure. Statutory demands tend to be ordered, with the winding up, being the result, 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.  

Creditors Voluntary Liquidation:

Creditors will vote on the decision to wind up a company. If 75% agree, then the winding up will begin. 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.

What happens now?

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 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. For more information, visit our page on issuing a winding up petition.  

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, Creditors Voluntary Liquidation CVL

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