Winding Up a Company

Directors who want to wind up their limited company will often want to do this in the quickest, easiest, and most cost effective way and so they may wonder if this is possible without engaging the services of a liquidator.

In summary, all forms of liquidation require an Insolvency Practitioner to be appointed. A company which is solvent and has no debts can be dissolved but this is generally not the same as other fiorms of company winding up.

What Does it Mean to Wind Up a Company?

The phrase winding up is most commonly associated with the court process whereby a creditor issues a winding up petition which results in a winding up order via compulsory liquidation.

However, the term winding up is also often used synonymously with liquidation, which is the process of formally closing a company and thereafter a liquidator deals with all matters leading to the company no longer legally existing. So, in thh wider sense, winding up a company can mean either voluntary liquidation started by the company directors or compulsory liquidation started by the creditors. There are differences in process between these methods until a liquidator is appointed but after that the process is largely the same.

Can I Wind Up My Business if it is Solvent?

Whilst not strictly speaking winding up, you can dissolve (also known as strike off) your business without a liquidator if it is solvent, meaning you are able to settle debts or have assets that exceed liabilities. The process involves completing form DSO1 from the government website and paying a £10 fee. Subject to no objections, the strike-off will be approved with dissolution to follow.

Striking off is the simplest and cheapest option and does not require a liquidator. However, directors do need to follow the correct procedures, which include informing HMRC, ensuring any staff are made redundant and all company filings are up to date.

Meanwhile, if your business has significant assets, of at least £25,000, you may wish to choose a Members’ Voluntary Liquidation. This is a form of solvent liquidation and can offer significant tax advantages, but it does require a liquidator to oversee the process. 

Do I Need to Appoint a Liquidator if my Company is Insolvent?

The short answer to this is yes – you will need to find and appoint a licensed insolvency practitioner to act as the liquidator of your business. They will take over the running of the company while it is wound down, and their role includes dealing with creditors and employees as well as having assets independently valued – these will be sold off to pay creditors. 

What are the Options for Winding Up an Insolvent Company?

In terms of liquidation of an insolvent business, there are two options. This can either take place via a Creditors’ Voluntary Liquidation or it can be wound up via the courts on a compulsory basis.

A Creditors’ Voluntary Liquidation (CVL) is generally chosen when recovery is not possible and there is a need to bring an orderly closure to the business. The business will have been deemed to be insolvent, typically because of cash flow problems.

There are clear benefits to a CVL over a compulsory liquidation because it provides directors with more control over the process. They should be able to start the process earlier compared to a court winding up and directors can appoint a liquidator of their choice. At least 75% of shareholders need to agree to a CVL and the insolvency practitioner will ensure the necessary steps are taken to deal with any employees and creditors and to close the company.

A compulsory winding up is the other option, which is winding up via the courts –  while there was a temporary moratorium on this because of the pandemic,  creditors can take this action again, although the debt owed now needs to be at least £10,000 compared to the earlier figure of £750. A winding-up petition is a court order to forcibly shut down a business and is a method generally used when the creditor has exhausted all other means to obtain payment and also issued the company with a statutory demand.

A liquidator is used to take over the company and sell off assets, but they are appointed by the court rather than the directors and are known as the Official Receiver.

Although both a CVL and a compulsory wind-up result in the company being closed, having the court shut down a company can be more damaging. So, directors are completely shut out of the process in terms of timings and influence and it can also be more harmful in terms of reputation – it can show a lack of control and director responsibility.

In all cases, the liquidator is required to investigate directors’ conduct to determine why the business failed. In many cases, directors will not be at fault and there were no means available to save the company and repay creditors. However, they will also see if there is evidence of wrongful trading or fraud, and instruct the Insolvency Service to undertake a more detailed investigation if necessary.

What if I’m Unsure About the Closure of my Company?

The decision as to whether or not to close a company is often one of the biggest a director needs to make. In terms of expert advice, a licensed insolvency practitioner can be your best port of call – they have the knowledge and experience to guide on rescue mechanisms or to ensure an effective liquidation – if this is the most appropriate solution.