Closing Down A limited Company

• The content on this page has been written by Robert Moore and approved by Chris Ferguson Licensed Insolvency Practitioner and Director of RMT Recovery & Insolvency

There are many reasons for wanting to close down your limited company. Some of the most common reasons are;

1. For retirement purposes.
2. To repay capital to shareholders
3. Becoming a sole trader
4. Due to the company’s financial difficulties.
5. The company is no longer needed as the directors now have permanent employment

How Does A Limited Company Close Down?

How a company is closed down depends very much on its financial situation, its solvency and whether it is trading or not.

It can be closed by the directors whether it is solvent or insolvent in 4 main ways.

1. Members Voluntary Liquidation also known as solvent liquidation. If it has no debts but more than £25k of assets it can be closed using a members voluntary liquidation.
2. Creditors Voluntary Liquidation. If the company is insolvent and unable to pay its debts, then under director and shareholder control it can enter into creditors voluntary liquidation.
3. Compulsory Liquidation; this is usually initiated by a creditor, such as HMRC, by issuing a winding up petition in the Court to have the company compulsorily liquidated.
4. Voluntary Dissolution, can be used if the company has no assets, it has no debt or minimal debts and it hasn’t traded for 3 months.

Member voluntary liquidation (MVL) is usually used after all creditors, corporation tax and other liabilities have been paid, final accounts have been filed and corporation tax returns have been filed. It can be a tax efficient method to return capital to shareholders. This option can only be done by a licensed insolvency practitioner.

Members Voluntary Liquidation (MVL)

1. This is a formal process used to close a solvent company.
2. Licensed insolvency practitioners are called in to aid the company in turning assets into cash.
3. The money received from this is then equally distributed to the company shareholders.
4. Directors may be able to claim Business Asset Relief if there is £25k or more cash.
5. Members receiving this money are taxed using capital gains tax rather than dividends.
6. To claim relief, the directors must declare that the company can pay for everything, including the cost of liquidation, in full.

To help with the formal process, call our experienced licensed insolvency practitioners on 0800 9700 539.

If your limited company owes money to creditors, and its debts are more than the value of any assets then the most common option chosen is creditors voluntary liquidation (CVL)

The company can commence the liquidation process but, again, it can only be done by a licensed insolvency practitioner

Download our Complete Guide to Creditors Voluntary Liquidation

If you would like to discuss how to liquidate your company, call us on 0800 9700539 or you can fill out a form on our www.liquidatemycompany.com website and get a quote in minutes. We can talk you through the process, organise the legal paperwork and begin proceedings. This is the most common way to close a company.

Compulsory Liquidation

A creditor can apply to the court for your company to be wound up by issuing a winding-up petition. This will bring an end to the company as a winding-up order will be made usually 30-75 days later by the Court.. The Official Receiver is then appointed to liquidate any assets of the company and undertake an investigation into the director’s conduct.

Options to Close A Company With No Debts (Solvent)

Closing down after IR35

If you are considering closing your company after IR35, due to the IR35 reforms, then bear in mind all the valid points above. Many private sector companies are now not taking on contractors via companies. This may mean that your company is no longer viable/needed or is insolvent as any debts cannot be paid off by the company itself. If the company is insolvent then a creditors voluntary liquidation is the correct way to the close the company.

Simple Company Close Down

Yes, you can close your company. The process is called dissolving a limited company or dissolution. It’s a handy and cost-effective tool. However, don’t try and dissolve a company with debts of £5k or more as it will just be rejected.

What is Dissolution

A voluntary dissolution can remove companies from the Companies House Register if you meet certain conditions. Most specifically, you cannot dissolve a company if it has significant debts. You cannot dissolve your company unless ALL of the requirements below are met.

This process is a provision in the Companies Act to allow the removal of the company from the Companies Register, typically when the company is dormant.

A company can only be dissolved if:

• It has not traded for three months; this must be a genuine cessation of trade!
• It has no assets, property, or cash at the bank.
• The creditors are informed, requesting their permission for the company dissolution.
• The company has not changed its name in this period.
• The company has not disposed of any property or assets (this may include land, buildings, plant, equipment, debtors and other assets).

Please note that paying off debts does not necessarily constitute trading.

How Do I Dissolve My Company?

To begin the company dissolution process, you will need to submit a DS01 form, which must be signed by the directors. The form must be sent to Companies House and a copy will then be sent to all important parties, including creditors, employees, and shareholders. The process can also be completed online through the Companies House website.

Once you have sent the form off, you’ll get a letter from Companies House to let you know if they have the correct details. If they do, your request will be published in the London Gazette. If no one objects, the company will be dissolved two months after the initial notice. Then, a final notice will be published in the Gazette to confirm the company has been officially dissolved.

After the company is dissolved, you need to retain any documents or information relating to the company for the next seven years.

What Happens to Debts Once a Company is Dissolved?

If your company has debt to HMRC or creditors which it is unable to pay, they will likely file an objection to the dissolution. Creditors can also object if they believe your company has not been closed with the correct information. Consequently, your application for dissolution will be closed and you will then have to consider another form of company closure such as a Company Voluntary Liquidation (CVL) or Administration.

When You Cannot Dissolve Your Company

A formal insolvency procedure has started. These procedures include a CVL, CVA, administration, receivership or compulsory liquidation under the Insolvencies Act 1986.

A winding up petition has been issued against a company.

Directors Health Warning!

The Insolvency Service has been given powers to investigate directors of companies that have been dissolved as set out in the Ratings (Coronavirus) and Directors Disqualification (Dissolved Companies) Act.

The Act is retrospective and will enable the Insolvency Service to also tackle Directors who have inappropriately wound-up companies that have benefited from Bounce Back Loans. So, if you have a Bounce Back Loan, do not try and dissolve the company! All the banks receive a notice from Companies House if you try and they will object.

Advantages and Disadvantages of Dissolution

Advantages:

• It is a quick and clean removal of a dormant company from the Companies House Register.
• It avoids the costs of liquidation, fees, and expenses (if small debts!).
• It avoids formal investigation into the conduct of the directors as required in liquidation.

Disadvantages:

• Creditors may reject the application; their permission is required to proceed with dissolution.
• Any shareholder, creditor or liquidator can apply to revive the company for up to 20 years after dissolution if they believe that the creditors did not receive the correct notice, the company was trading, or there was some fraud or other unjust action.
• Dissolution cannot terminate leases, HP agreements, or contingent liabilities. These circumstances require receivership, administration, or a CVL.

Directors Health Warning!

The Insolvency Service has been given powers to investigate directors of companies that have been dissolved as set out in the Ratings (Coronavirus) and Directors Disqualification (Dissolved Companies) Act.

Extension of the power to investigate also includes the relevant sanctions such as disqualification from acting as a company director for up to 15 years. These powers will be exercised by the Insolvency Service on behalf of the Business Secretary.

The measures included in the Ratings (Coronavirus) and Directors Disqualification (Dissolved Companies) Act are retrospective and will enable the Insolvency Service to also tackle Directors who have inappropriately wound-up companies that have benefited from Bounce Back Loans.

Making your limited company dormant

In a nutshell, this means putting your company on hold. It can be done if you think you will trade through your company again in the future.

With this procedure you still need to file some tax returns but they will be ‘nil returns’ i.e. lots of zeroes!

Whilst the company is on hold, you are able to work as a sole trader outside of it until you feel ready to return to your limited company.

So have a think, assess your situation and seek the best option. Get in touch with us today for help and guidance.

In all cases it is worth getting professional advice from a firm of licensed insolvency practitioners like us. Call 0800 9700539 to speak to an expert today.