Chris is an Insolvency Practitioner regulated by the ICAEW since 2014,.
He is experienced in contentious insolvency with excellent analytical skills and strong knowledge of both general and technical insolvency matters.
Closing a limited company in the UK may be necessary for various reasons, such as financial difficulties, retirement, or a change in business focus. It is crucial to follow the correct legal steps to avoid future liabilities or penalties. The first step is determining whether your company is solvent (able to pay its debts in full) or insolvent (unable to pay its debts as they fall due). This distinction is important because it strongly influences which closure routes are appropriate and lawful.
In broad terms, solvent companies may be eligible for a voluntary strike off or a Members’ Voluntary Liquidation (MVL), while companies that cannot pay their debts will usually need to consider a formal insolvency procedure such as a Creditors’ Voluntary Liquidation (CVL). Choosing the wrong route can expose directors to serious legal risks.
Determining whether a company is solvent or insolvent is a critical first step when considering closure. A company is generally considered solvent if it can pay all its debts in full, including future and contingent liabilities. Insolvency arises when a company cannot pay its debts as they fall due or when its liabilities exceed its assets.
Misjudging solvency can lead to significant legal consequences. Directors who treat an insolvent company as solvent risk breaching their duties and may face personal liability or disqualification.
Key financial checks to assess solvency include:
Assets vs. liabilities: Assess whether the company’s assets are sufficient to cover all known debts.
Future and contingent liabilities: Consider upcoming obligations such as tax bills, lease commitments, or unresolved disputes.
Tax position: Review outstanding Corporation Tax, VAT, PAYE, and National Insurance obligations.
A company may appear solvent based on its current bank balance, but still be insolvent once future liabilities are taken into account. A thorough financial review is therefore essential before choosing a closure route.
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Voluntary strike off is an administrative process that removes a company from the Companies House register. It is only available if the company meets specific eligibility conditions set out by Companies House.
Before applying, the company must:
Not have traded or carried on business in the last three months.
Not have changed its name in the last three months.
Not be threatened with liquidation.
Not have entered into a formal insolvency procedure or creditor arrangement.
The company should also ensure that outstanding matters are dealt with appropriately, including settling debts and addressing tax obligations.
Pre-Strike-Off Checklist
Final accounts and returns: Prepare and submit any required final Corporation Tax returns and accounts to HMRC.
HMRC notification: Inform HMRC that the company intends to close and deal with outstanding tax matters.
Employee matters: Resolve employee issues, including final pay and redundancy where applicable.
Notifiable parties: Ensure creditors, shareholders, employees, directors, and other required parties are informed.
Once ready, you can file form DS01 with Companies House. The application fee is £33 if filed online or £44 if filed by post. Copies of the application must be sent to all “notifiable parties” within 7 days of submission.
If there are no objections, Companies House will publish a notice in the Gazette. The company will usually be struck off no earlier than two months after the Gazette notice.
Members’ Voluntary Liquidation (MVL)
A Members’ Voluntary Liquidation (MVL) is a formal process for closing a solvent company, typically one with assets or retained profits to distribute. It requires the appointment of a licensed Insolvency Practitioner (IP) to act as liquidator.
The MVL process includes:
Shareholder resolution: A special resolution (at least 75% approval) to wind up the company.
Declaration of solvency: Directors must swear a statutory declaration stating that the company will be able to pay all its debts in full, together with interest at the official rate, within no more than 12 months from the start of the winding up.
Liquidation and distribution: The liquidator realises assets and distributes surplus funds to shareholders.
An MVL can offer tax advantages for shareholders, as distributions may qualify for Business Asset Disposal Relief (formerly known as Entrepreneurs’ Relief), subject to meeting HMRC’s conditions.
An MVL is often chosen when directors are retiring or reorganising and wish to close the company in a structured, compliant way.
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If a company cannot pay its debts as they fall due, it is usually appropriate to consider a formal insolvency procedure. One common route is a Creditors’ Voluntary Liquidation (CVL).
In a CVL:
A licensed Insolvency Practitioner is appointed as liquidator.
Creditors are notified and invited to submit claims.
Company assets are realised and distributed in the statutory order of priority.
The company is ultimately dissolved after liquidation concludes.
Once insolvency is apparent, directors’ duties shift toward protecting creditors’ interests. Continuing to trade without a reasonable prospect of avoiding insolvency can expose directors to claims for wrongful trading.
A CVL provides a structured, lawful way to close an insolvent company while ensuring creditors are treated fairly.
Key Risks, Costs, and Timelines
Choosing the wrong closure route can have serious consequences, including personal liability or director disqualification. While Companies House filing fees are fixed, many costs associated with liquidation depend on the company’s circumstances and are not set by statute.
General considerations include:
Voluntary strike off: Low administrative cost, but only available if eligibility conditions are met. Dissolution typically occurs at least two months after the Gazette notice if no objections arise.
MVL: Requires a licensed Insolvency Practitioner and involves a formal process to realise and distribute assets.
CVL: A formal insolvency procedure involving creditor engagement and asset realisation, with timelines varying based on complexity.
Disputes, investigations, or unresolved claims can extend any closure process.
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A common mistake is attempting to dissolve a company that does not meet the eligibility criteria for strike off. Another misconception is that a company can simply stop trading and be ignored. Until a company is formally closed, directors remain responsible for statutory filings and obligations.
Failing to deal with creditors, tax liabilities, or Companies House requirements can result in objections, enforcement action, or personal consequences for directors.
Confirm All Debts Are Addressed
Before proceeding with closure, review the company’s financial position carefully and ensure that outstanding matters are dealt with through the appropriate process. Professional advice may be appropriate where the position is unclear.
FAQs
1. Can I close my limited company if it still has outstanding VAT returns?
You should address VAT obligations before applying for strike off. In insolvency situations, outstanding VAT returns are usually dealt with as part of the insolvency process, often by the insolvency practitioner.
2. What happens if a creditor objects to my strike off application?
If an objection is made, Companies House will suspend the strike-off process. You must resolve the issue before the application can proceed.
3. Do I need a professional valuation of company assets before liquidation?
There is no statutory requirement for a formal valuation in every case, but assets must be realised at proper value. Insolvency practitioners may obtain valuations where appropriate.
4. Can I reopen a dissolved company after strike off?
Yes. A dissolved company can be restored to the register by administrative restoration or by court order, subject to eligibility and time limits.
5. How long does the CVL process typically take?
The length of a CVL varies depending on the company’s affairs, assets, and creditor issues. There is no fixed statutory duration.
6. Is there a minimum amount of debt required to use a CVL?
No. A CVL is based on inability to pay debts, not on a minimum debt threshold.
7. Will closing my company affect my personal credit rating?
Closing a company does not automatically affect personal credit ratings. However, personal guarantees or misconduct can have personal financial consequences.
8. Are there tax advantages in choosing an MVL over a strike off?
An MVL may allow distributions to be treated as capital and potentially qualify for Business Asset Disposal Relief, subject to HMRC rules.
9. What if the company has an overdrawn director’s loan account?
An overdrawn director’s loan account is an asset of the company and must be addressed during closure. It may need to be repaid or otherwise dealt with.
10. Do I have to inform HMRC before closing the company?
Yes. You must notify HMRC and ensure required returns are submitted and tax matters addressed.
11. How does company restoration work?
Restoration reinstates a dissolved company on the Companies House register, usually within specific statutory time limits and subject to conditions.
12. Is it necessary to pay employees’ redundancy before closing the business?
Where a company is solvent, employee entitlements should be paid. In insolvency, eligible employees may claim statutory payments through the government if the company cannot pay.
Your Next Step
Confirming your company’s financial position is essential before proceeding with closure. This determines whether administrative dissolution is appropriate or whether a formal liquidation process is required. Completing all statutory steps, notifying relevant parties, and addressing outstanding obligations will help ensure a compliant and orderly closure.
If there is uncertainty, seeking advice from a licensed insolvency practitioner or reviewing official GOV.UK guidance can help you choose the correct route and avoid future complications.
