Forming a company is a simple enough process and one you can complete in just a couple of hours. However, closing or ‘dissolving’ a company can be a different matter entirely without professional help. Although there’s nothing like a bit of expert assistance to help you tie up all those loose ends, it is possible to close your limited company yourself.
In this post, we will explore the different ways a limited company can be dissolved, including members’ voluntary liquidations, creditors’ voluntary liquidations and compulsory liquidations by your creditors or HMRC.
What does the Law say about Closing a Company or Ceasing Trading?
HMRC’s page on the regulations is here. The law differs depending on whether your company is solvent or insolvent.
If your company has debts or is insolvent, you should speak to an insolvency practitioner who will likely recommend you a creditors voluntary liquidation, as the appropriate method.
For solvent companies with assets who want to close a company in a tax efficient manner, a members voluntary liquidation is the right choice.
Where a company hasn’t traded in at least 3 months, a process known as strike off, or dissolution, may be appropriate.
Closing your Company via Applying to Companies House for Voluntary Strike-Off
If you choose to wind up your limited company, you must apply to Companies House to have it voluntarily wound-up and struck off the register. You can only have your company struck off the Companies Registrar if:
• Your company hasn’t traded or sold any stock in the last three months
• Hasn’t changed names in the last three months
• Isn’t threatened with liquidation
• Has no agreements with creditors, e.g. a company voluntary arrangement (CVA)
If you satisfy these conditions, you will be provided with a DS01 form to complete. This should be completed and filed with Companies House along with a £10 filing fee. You will also have to fulfil a number of obligations.
If your company doesn’t satisfy the above conditions, you will have to voluntarily liquidate the business instead.
Closing a Company via Members’ Voluntary Liquidation
If your company is solvent but does not meet the requirements listed above, you can liquidate the business using a members’ voluntary liquidation. This is appropriate if you want to:
• Step down from a family business and no one else wants to run it
• Pursue another career path
• Release assets/cash from the company tax efficiently
How to Close a Limited Company That Never Traded?
If the company is dormant or never trade, closing the company should be straightforward. Once the directors have agreed, submit the application for Strike Off using form DS01. After it’s been advertised in the Gazette, and waited out the mandatory 3 month objection period it will be struck off the register and cease to have legal existence.
Will Closing a Company Affect the Director Personally?
As long as the director has not behaved improperly, the closure will have no impact on any future business activities.
Can I Close a Company and Start a New One?
The answer is that you can start another one providing all the requirements of companies house are adhered to. What HMRC is keen to prevent, however, is the process known as phoenixing, whereby a liquidated company rises from the ashes with the same or similar name, but within a new limited company structure. This is prohibited by Section 216 of the Insolvency Act.
How to Close a Company With Debts
If you want to close a company that is unable to pay its bills, you will need to initiate a creditors’ voluntary liquidation. A director of a company can propose a creditors’ voluntary liquidation if:
• The company can’t pay its debts
• Enough shareholders (75 percent by the value of shares) agree
To get the shareholders agreement to cease trading and liquidate the company you must call a shareholders meeting and ask them to vote. If 75 percent (by value of shares) agree, you must then:
• Appoint an authorised insolvency practitioner to liquidate the company
• Send the resolution to Companies House within 15 days
• Advertise the resolution in the Gazette
The company must also hold a creditors’ meeting within 14 days of passing the resolution. Creditors must be given at least 7 days notice of the meeting, which must also be advertised in the Gazette. A Statement of Affairs must be presented to creditors during the meeting which summarises the company’s assets and liabilities. A summary should also be given to the liquidator.
When all assets have been converted into cash and creditors repaid in order of priority, the company will be struck off three months after the liquidator has held a final meeting.
Be careful to check for an overdrawn directors’ loan account as this can be quite serious once a company has become insolvent.
Striking Off a Company with Debt to HMRC or Another Creditor
If you attempt to strike off your company with outstanding debts to HMRC or another creditor, they will likely raise an Objection to Company Strike Off. This is a formal objection which tells you that you are forbidden from closing the company until your debt is settled. If you are unable to settle your tax arrears, there is the possibility that they will compulsorily liquidate your company. If HMRC is the creditor, they will often do so not because the sums of money are meaningful to them, so much as to make an example. So if you’re in this situation, it is wise to seek advice immediately.
Compulsory liquidation by creditors or HMRC
If your company is unable to pay its bills or reach an agreement with its creditors, they can choose to make an application to the court for a winding-up petition to bring the company to a close. At this point the company will be forced into liquidation, and any assets will be sold by the appointed liquidator to repay the company’s debts.
Get in touch if you Would Like Our Help With Closing Your Limited Company?
If you want help liquidating your company voluntarily, or fear you will be handed a winding-up petition by a secured creditor or the HMRC, you should contact Company Debt. at your earliest opportunity. We can put the provisions in place to help you wind up your business seamlessly, or act quickly to help you avoid a compulsory liquidation.