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“What does winding up a limited company mean? How can I wind up a business?”

Winding Up a Limited Company UK

Essentially, winding up a limited company is just another way of saying you are liquidating your limited company but the term ‘winding up’ is more commonly linked to when a creditor is winding up a company. When considering winding up a limited company in the UK you should first establish whether your company is solvent or insolvent. Have a look at our ‘What is Insolvency’ page to find out.

Winding Up a Solvent Company

If your limited company is solvent and you want to wind up your company then you should consider a members’ voluntary liquidation. This is relevant when winding up a company voluntarily, as long as it does not have any debts and a declaration must be signed verifying this fact. We have specialist tax consultants who can provide appropriate tax advice on a member’s voluntary liquidation and the tax can often be reduced to 10%.

More often than not, however, a director will seek help when a creditor is threatening winding up of their company and so the bulk of this section will therefore deal with these scenarios. Generally there are two different types of insolvent liquidation and they are:

  • Compulsory Liquidation (via Winding Up Petition)
  • Creditors’ Voluntary Liquidation

Winding Up an Insolvent Company Voluntarily

If your company is insolvent and cannot afford to pay the bills on time then you may want to consider a creditors’ voluntary liquidation for your company. As a limited company is a legal entity in its self the debts belong to the limited company not the officers of the company (directors) unless personal guarantees have been signed. The winding up of a limited company allows the debts to be liquidated along with the company once finally struck off the company register.

Winding up a limited company can be tricky depending on the situation as directors can leave themselves open to attack by creditors if they make the wrong move. In some cases, engaging an insolvency practitioner as your first port of call could be the worst thing you could possibly do. This is explained more on the Insolvency Practitioners UK page. If you wish to speak to a specialist who can help you with a creditors’ voluntary liquidation and winding up a limited company voluntarily call 08000 746 757; or email [email protected]

Compulsory Liquidation of an Insolvent Company with a ‘Winding Up Petition’

If you have received a winding up petition or a winding up order against your company then please seek advice as soon as you can. A winding up petition means that a creditor is trying to force your business into liquidation and you will lose control of the situation once the Official Receiver has been appointed. In fact the director/s will start to lose control once the winding up petition is advertised in the government’s insolvency register (The Gazette). The company bank account will very likely be frozen and company assets cannot be moved or sold so we recommend seeking help when threatened with a winding up petition.

The company will be forced via the winding up petition to close in court with a compulsory liquidation of the company. A compulsory liquidation of the company should be avoided in most cases due to the inherent risks involved in the compulosry liquidation of the company.

In essence the director has a legal duty to close the company appropriately for example a creditor voluntary liquidation would be regarded as appropriate whereas a compulsory winding up of the company is a forced liquidation so regarded as inappropriate.

We are very experienced at fighting winding up petitions and we have been successful in doing so and in the majority of cases we can usually rescue the business if not the company. 

Knowing who to trust can be hard when considering winding up a limited company so make sure you read through our testimonials page and if necessary, we can also arrange for you to speak with some of our previous clients as further testament to our limited company winding up services. 

Prefer to talk? Speak with one of our specialist team members today on 08000 746 757; or use the live support facility at the bottom of the page to get an answer fast about winding up a company. Alternatively, you can contact senior turnaround practitioner Mike Smith on 07912 344 394.  

Written By: Mike Smith

FEELING CONFUSED? - WE CAN RESOLVE YOUR BUSINESS DEBT PROBLEMS

CVA, otherwise known as a company voluntary arrangement, allows you to protect your company against legal action, as with administration, but with the purpose of creating a legally binding payment plan with your company’s creditors. The cva is tailored around your company’s cash-flow so that your company’s debts can be repaid, either in part, or in full over a maximum of five years. A cva is initiated by you (the director), not the creditors or shareholders.

When used correctly, a cva can provide a perfect tool to renegotiate troublesome trade agreements whilst allowing you to trade on through a financially challenging period. This solution should only be considered if you believe your company is viable, but needs some help to trade through.

A CVL is also known as a creditors voluntary liquidationIt is a solution that allows you to close your company with or without the permission of creditors and it allows the company to write off unsecured debts. This type of liquidation is initiated by you (the director), not the creditors as the name may lead you to believe. Choosing the right insolvency practitioner can be critical when considering liquidation. Ask to speak with previous clients as testament to their services before committing to any company to carry out a creditors’ voluntary liquidation.

pre-pack can refer to pre-pack administration or pre-pack liquidation, either way, the solution involves having a future buyer lined up to purchase the more profitable parts of the business, whilst leaving the debts behind. It is important to obtain specialist help immediately if you think this may be a viable solution for your company as strict procedures must be followed if you, as a connected person, are considering purchasing your company’s assets. Nevertheless, if your business is generating revenue producing contracts, has sizable assets or properties, but they are under threat from serious litigation or angry creditors; a pre pack administration can provide a very powerful legal solution for your company.

Administration is a very powerful legal tool that can be used to; first, stop legal action against your company and then:
Get a better return for the creditors than would be obtained via an immediate liquidation, or rescue your company from financial difficulty as it provides you with more time allowing for a rescue strategy to be put in place for everyone's benefit.

There are two key tests/questions that apply to companies when defining whether it is insolvent or not and they are:

  1. The cash-flow test: Can the company pay its bills when they are due?

If the answer is NO, then your company is likely to be insolvent and you should seek advice. 

  1. The balance sheet test: Do your company’s debts outweigh the company’s assets?

If the answer is YES, then your company is likely to be insolvent and you should seek advice.

No. Insolvency does not have to spell the end for your business as there are a number of tools that we can use to secure both your future and/or your company’s future whilst protecting you fully and minimising any potential risks.

Around 70% of directors have a problem with an overdrawn directors loan account at some stage.  Most commonly, the director seek advice from an accountant who tells him/her to take a minimum salary in order to keep national insurance and tax at the lowest levels and to then take dividends to supplement their income. This then causes an unpaid debt which is owed to the company. This is very acceptable tax advice until something goes wrong which could be a sharp, unexpected drop in revenues for whatever reason or a threat of a winding up petition from HMRC. The directors then become debtors (someone who owes money) to the company and any liquidator, has a duty to pursue the director to the point of bankruptcy, if the debt cannot be repaid. 

Around 70% of our work involves HMRC in one way or another, including providing advice on distraint warrants, winding up petitions, negotiated settlements, time to pay arrangements, field officer visits, compliance team visits and more. 

In the vast majority of cases you pay us nothing at all. When an insolvency solution is required such as a cva, administration or liquidation - we get paid for all of these by completing the field work for the insolvency practitioners. This relationship benefits you in more than one way: As you may already know, once an insolvency practitioner is engaged by your company they are duty bound to work for the creditors. So once engaged, an insolvency practitioner cannot address any potential personal implications that may be directly caused by the insolvency process as it would be a direct conflict of interests for them to do so. Jameson Smith & Co puts your protection first, whilst working with the insolvency practitioners so you have full peace of mind.

A directors' personal guarantee is essentially a promissory note to pay an organisation regardless of your company failing or going into liquidation. At some stage you may have signed an agreement with the bank or another trade creditor, making you personally liable for a specific debt. Once you realise that your company is heading towards insolvency you should seek advice on how to tackle this situation immediately if you are in any doubt about what to do.

Banks will often support personal guarantees with a charge on the family home and, or a debenture usually a fixed and, or floating on the company assets.

We specialise in helping directors address their personal guarantees and providing solutions to allow the directors to exit the situation in the best financial shape possible.

Read our page on directors' personal guarantees for more information on how we can help you.

winding up petition is the application for a forced/compulsory liquidation of a limited company or partnership. This is usually initiated by a creditor (person/business that your company owes money to). Winding up petitions should never be ignored. There can be serious implications if communication with the relevant creditor or immediate action is neglected at this stage.

statutory demand is a documented written request, usually sent from a creditor for payment of a debt that is owed. You would have 18 days to negotiate a settlement or ask the court to set-aside (dismiss) the demand. If no settlement is made after 18 days from receiving the statutory demand you are given a further 3 days to pay in full. This is a very serious document and should not be ignored in any circumstances. After the 21 day period has lapsed and if there is no response to the document, the creditor can then petition to court for a winding up order for a debt as little as £750.

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08000 746 757
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