We explain what it means for a limited company to cease trading, what the ramifications are for both company directors and creditors and how we can help if you need your business to cease trading for whatever reasons.
What Does it Mean to Cease Trading?
Ceasing trading is an official term for when a business stops running. Employees are laid off, assets sold and, in many cases, the business name will be struck off the register at Companies House. In terms of the question of “how to cease trading?” the answer to an extent depends on whether your business ceases trading while solvent or insolvent but the basics still revolve around notifying any staff, your customers, HMRC and others.
- the triggers for ceasing to trade are generally either because :the business is insolvent
- the business is not in debt but the directors choose to shut the business due to retirement, health issues or simply because their interests have moved elsewhere.
Process for Ceasing Trading
If a business ceases trading while solvent, the directors will sell off any company assets, settle any liabilities and distribute the proceeds amongst shareholders before closing the company down.
If the company is insolvent, the asset sale must be handled by an insolvency practitioner who will ‘liquidate’ before distributing the proceeds amongst creditors, by order of preference.
Ceasing to Trade Voluntarily
Many directors who sense compulsory liquidation may be imminent choose to voluntarily liquidate. This process, known as creditors voluntary liquidation, allows the directors to retain more control than being forcibly wound up.
Directors of a solvent limited company also need the assistance of an insolvency practitioner to formally close a company that is in profit. This process is known as members voluntary liquidation, to which there may be tax benefits via something called Entrepreneurs Relief.
Limited Company Forced to Cease Trading
Of course, if you receive a letter such as a winding up petition because of unpaid debts, a judge will hear the case. Where it is ruled against you, you could find yourself with a ‘winding up order’ which means you must cease trading immediately, prior to compulsory liquidation.
What Does ‘Ceasing Trading’ Mean for Company Creditors?
If you are owed money by a company which has stopped trading, you first need to try to ascertain the exact state of affairs. Have they gone into liquidation? Are the directors in the process of dissolving it?