When a UK company is facing closure with significant debts, directors have two main options: address the debts directly before applying for a company strike off, or opt for a Voluntary Liquidation (CVL) if the company’s financial situation is beyond recovery.

This article outlines the procedures for both, providing directors with a clear understanding of their responsibilities.

Closing a Company with Debts

You have two options for closing a limited company with outstanding debts in the UK, but a Creditors Voluntary Liquidation (CVL) is the insolvency process most commonly used. Creditors’ Voluntary Liquidation (CVL) is the official term of voluntarily liquidating an insolvent company, after which all company debts will be written off. Unless the directors have personal guarantees, all debts end with the closure of the company.

2 Options for Closure

  • Creditors’ Voluntary Liquidation (CVL) – This is a process initiated by the company’s directors. After obtaining shareholder approval, the directors appoint an insolvency practitioner (IP) to liquidate the company’s assets and distribute the proceeds to creditors. CVL gives the directors more control over the liquidation process, but it requires proactive steps from them.
  • Self-Settling Debts and Applying for Strike Off – A less formal method where you settle debts out of pocket and apply to the Companies House for a “Strike Off,” thereby dissolving the company. This avoids the need for liquidation but requires that all debts and obligations are fully met.

Regardless of the route taken, it is important to consult with a qualified Insolvency Practitioner as soon as possible. An IP can provide specific guidance tailored to your situation, helping you comply with your legal obligations and minimize your personal liabilities. Failure to act appropriately could result in legal consequences, such as director disqualification.

Option 1: Voluntarily liquidating a company with debts

The creditor’s voluntary liquidation (CVL) process must be done in conjunction with a licensed insolvency practitioner.

This approach ensures that an impartial third party, the insolvency practitioner, ensures the maximum possible return for creditors. Once they’ve been paid with whatever funds are available, any remaining debt is written off.

While some websites suggest you can simply dissolve a business with debts, HMRC makes it clear this is not the case, and they will object to any attempt to strike off the company.

If you do nothing, a credit will eventually force you into compulsory liquidation – a much more challenging scenario for directors – so a CVL is your best option.

Directors have more control over the process than a compulsory winding upClosure of the company
Potential to claim director redundancyStaff redundancies
Fulfilling director legal obligationsDanger of personal guarantees being called in
An end to legal actionPotential accusations of wrongful trading
Debts are written offLiquidations are publically advertised so you risk reputational damage
Allegations of wrongful trading are reducedAny overdrawn directors’ loan accounts will be called in
The business is closed down efficientlyShareholders unlikely to see a return

What happens to the company debts when I close the company?

In a CVL, the appointed liquidator will sell the company’s assets and distribute the proceeds among the creditors according to the legal priority. Any remaining debts after this are usually written off unless personally guaranteed by the directors.

Option 2 – Self-Settling Debts and Closing the Company via Strike Off:

If your company has debts, but you wish to avoid the formalities and complexities of liquidation, one option is to settle those debts yourself and then apply for a “Strike-off” to dissolve the company. This approach can be both cost-effective and straightforward, provided you adhere to the following steps and requirements.

Firstly, you need to ensure that your company has ceased trading for at least three months. During this period, you must settle all debts and obligations, including payments to suppliers, creditors, and HMRC. Make sure to also fulfil any contractual obligations, such as employment contracts.

Once all debts are settled, you can apply to the Companies House for a Strike Off by submitting Form DS01. There is usually a small fee involved in filing this application. After submitting, you must also inform stakeholders, including creditors, employees, and directors, by sending them a copy of the form within seven days.

Companies House will then publish a notice in the Gazette to inform the public of the intended Strike Off. If there are no objections within two months, the company will be formally dissolved.

Note that even after dissolution, directors could be held personally responsible for any undisclosed debts or liabilities. Therefore, comprehensive record-keeping and documentation are imperative throughout this process.

Option 3: Compulsory Liquidation: What Happens If You Don’t Close Your Limited Company

Compulsory Liquidation is a significant risk for any limited company that is insolvent and fails to take the necessary steps to address its debts. If a company does not pay its debts, creditors, including HMRC, can petition the court to force the company to close. This process is known as Compulsory Liquidation.

When a company is subject to Compulsory Liquidation, it loses control over the liquidation process. A liquidator is appointed by the court, not the company’s directors, and the primary goal is to sell all assets to repay creditors. This can lead to a less favourable outcome for all parties involved, especially for company directors who may face scrutiny over their conduct leading up to the insolvency.

It’s critical to act swiftly if your limited company is in debt. By taking voluntary steps to address the situation, such as initiating a Creditors’ Voluntary Liquidation, directors can maintain a level of control and potentially mitigate the repercussions.

Closing a Limited Company with Debts to HMRC

If your limited company owes money to Her Majesty’s Revenue and Customs (HMRC), it’s crucial to handle the situation carefully to ensure compliance with the law and minimise financial risk.

The best way to close a limited company with debts to HMRC is through a voluntary liquidation (CVL).

Prompt action is essential because if HMRC is owed money, it may initiate compulsory liquidation proceedings to recover debts. By opting for a CVL, you can pre-empt this and manage the company’s closure on your terms.

HMRC is considered a preferential creditor, meaning they are paid out before other unsecured creditors from any available assets during the liquidation. Although this does not ensure full settlement of their claims, it does place them towards the front of the queue for repayment.

Can HMRC force my company to close if I have outstanding tax debts?

Yes, if your company has unpaid tax debts, HMRC can issue a winding-up petition to close your company through Compulsory Liquidation. This is why it’s advisable to address tax debts promptly or consider a CVL before this occurs.

Debt guarantees

A personal guarantee is a legally binding contract in which a person agrees to be personally liable for the debts of another person or entity. Personal guarantees are often required by lenders when they provide loans to businesses.

If you have given a personal guarantee for the debts of your company, you will be personally liable for those debts if the company becomes insolvent and cannot repay them. This means that creditors can pursue you personally for the debts, even if you have resigned as a director or the company has been dissolved.

If you are closing a company with debts and you have given a personal guarantee, it is important to seek professional advice to understand your options. You may be able to negotiate with creditors to reduce the amount of debt you owe, or you may be able to enter into a personal insolvency arrangement, such as a bankruptcy or individual voluntary arrangement (IVA).

Can I walk away from a limited company with debt?

Yes, it is possible to walk away from a limited company, even if it has debts. However, there are some important things to keep in mind:

  • If the company is insolvent, you may be held personally liable for its debts if you have not acted properly. This could include if you have continued to trade while the company was insolvent, or if you have misappropriated company assets.
  • If you have given personal guarantees for any company debts, you will be personally liable for those debts, even if you walk away from the company.
  • You must follow the correct procedures to close down the company. This involves notifying Companies House and HMRC, and settling any outstanding debts.

Can I close a company with debts and start again?

Yes, you can close a company with debts through an insolvency process called Creditors’ Voluntary Liquidation (CVL) and potentially start a new company. A CVL means your debts will be written off with the company, creditors will be repaid as much as possible, and an insolvency practitioner will handle the whole process.

However, there are strict rules to prevent the abuse of the insolvency system. When closing the indebted company, you must ensure all legal obligations are met and the closure process is handled correctly, respecting the rights of creditors.

If you start a new company, you must comply with ‘phoenixing’ rules, designed to stop directors from evading debts by closing one company and starting a similar one. Directors can face legal consequences if found to be acting improperly or if the new company is deemed to be a mere continuation of the old one under a different name. It’s advisable to seek professional guidance to navigate these complexities.


In a voluntary liquidation, the liquidator will be responsible for selling off the company’s assets in order to pay off its debts. The liquidator will typically begin by identifying and valuating all of the company’s assets, which may include property, inventory, equipment, and accounts receivable. They will then take steps to market and sell these assets to the highest bidder.

The liquidator may choose to sell the assets through auction, private sale, or a combination of both. Depending on what will yield the best results, they may also sell the assets in bulk or piecemeal. The liquidator will use the proceeds from the sale of the assets to pay off the company’s debts, starting with secured and then unsecured creditors. Any remaining funds will be distributed to the shareholders by their shareholdings.

The liquidator will contact all known creditors, providing them with information on the liquidation process and how to make a claim.

The notice will typically include the following information:

  • The date the company went into liquidation
  • The name and contact information of the liquidator
  • Details of the claims process, including deadlines for making a claim and the documentation that will be required
  • Information about any meetings or other events that will be held in relation to the liquidation
  • Instructions on how to check if a claim has been accepted or rejected

When a company is closed, its employees will typically be made redundant, which means that they will lose their jobs. The liquidator will be responsible for providing the employees with information about their rights, including any redundancy pay or other benefits to which they may be entitled. The amount of compensation and the type of support provided will vary depending on th

No, once the company is in a formal liquidation process like a CVL, the responsibility for paying off the debts falls to the liquidator from the company’s asset sales. Directors are not required to pay the debts unless they’ve given personal guarantees.

An insolvency practitioner (IP) manages the closure process, sells assets, deals with creditors, and ensures legal compliance. They also investigate the company’s affairs and directors’ conduct before closure.

Creditors can influence the closure process. If they disagree with a proposed voluntary process, they may force a compulsory liquidation by applying to the court. Engaging with creditors early can help manage this risk.

The timeframe varies depending on the complexity of the company’s affairs. A CVL can take several months to a year or more if the asset and debt situation is complex.

Yes, alternatives include informal arrangements with creditors, a Company Voluntary Arrangement (CVA), or administration if there’s a viable business to save. Each option should be discussed with an insolvency practitioner.