Liquidating your company, also known as ‘winding up’, is a process of officially closing your business, disposing of any assets, and removing it from the official register at Companies House.
The company will no longer do business or employ people.
The steps required will differ depending on whether your company is solvent or insolvent, so this article is broken up into two parts.
Whether you have a solvent company and are seeking a tax-efficient means to close it, or wish creditor pressure and We’ll guide you through the process
What are the Options for Liquidating my Company?
If you want to liquidate your company, you should first realise you cannot do this by yourself.
Regardless of whether your business is solvent or insolvent, you will need the services of a licensed insolvency practitioner to liquidate a limited company in the UK.
The process of company liquidation is complex and requires a professional to fairly distribute the proceeds of any liquidated assets to company creditors. Even when a company has no assets and a relatively small debt, the liquidator has a duty to assess and investigate directorial conduct in case of wrongful trading.
In short, directors are too close to the situation to be allowed to do it themselves, and have a legal requirement to use an IP.
How do I Liquidate my Company?
There are 3 types of liquidation process under UK law:
- creditors’ voluntary liquidation – This where a limited company cannot pay its debts and you involve your creditors when you liquidate it
- compulsory liquidation – This where your company cannot pay its debts and is forced into liquidation by a court order
- members’ voluntary liquidation – your solvent company can pay its debts but you want to close it
The basic insolvent liquidation process is as follows:
- Confirm your company is insolvent via the insolvency test, or by taking professional advice from your accountant or financial adviser. Once confirmed, the best method for voluntarily liquidating an insolvent company is known as a CVL or Creditors’ Voluntary Liquidation.
- Secure the services of a Liquidator (Insolvency Practitioner) (such as ourselves). You should ensure they are licensed and ideally have demonstrable experience working with a business such as yourselves.
- The liquidator will call a meeting of members in order to vote upon a ‘winding up resolution’ the legal procedure that will result in the company liquidation. At least 75% of members (by value) need to vote ‘yes’ for the resolution to pass. Alternatively, there is the option to wind the company up what via a ‘written resolution’. This is when a resolution is sent to shareholders which they have to sign and return. When the majority of 75% is reached in returned resolutions, then the company is in liquidation. This second route is more popular as its avoids formal meetings.
- After the passing of the winding up resolution, the Insolvency Practitioner assumes formal control of the company with the intention of converting company assets into cash (this is known as ‘realising assets) and distributing the proceeds amongst creditors.
If it’s Solvent
- Confirm your limited company has net assets over £25,000. Below this amount it may be possible, to strike off (dissolve) the company as a cheaper alternative.
- Call a Shareholders Meeting to vote on the winding up of the company.
- Engage the services of an Insolvency Practitioner (liquidator)
- The liquidator will assist with the preparation of a Declaration of Solvency. This is an official document, signed by the company directors, stating that the company can repay any debts (including interest) within a 12 month period. It includes a full breakdown of assets and liabilities and must be made before a solicitor of commissioner of oaths, before being filed at Companies House.
- The IP will liquidate any company assets and deliver the proceeds to the company members.
Can I Liquidate my own Company?
You can’t liquidate a company yourself. Some company directors who wish to close their company fear that without the money to pay an insolvency practitioner they will not be able to complete the process. The first thing to mention is that liquidators fees are taken from the realisation of assets so, assuming the company has some assets in addition to its debts, you would be able to proceed with using a firm of insolvency practitioners. They are legally entitled to take their agreed fee from the sale of company assets as a preferential creditor.
The second point is that if you don’t initiate a liquidation for fear of the costs, you will then be in a position of waiting for your creditor (often HMRC) to compulsorily wind you up. In this scenario, company directors have less control over the process and outcome, since the creditors will appoint their own insolvency practitioner.
Protecting Yourself as a Director
Directors considering liquidation should be aware that the liquidator has a duty to examine the behaviour of the directors in the period preceding insolvency. The Insolvency Practitioner will be looking for evidence of directorial misconduct, principally wrongful trading. Evidence of this can lead to a director’s disqualification order and a ban from serving as a director for 15 years.
Consulting with a qualified insolvency practitioner at an early stage is the safest way to understand your situation and protect your interests. Choosing voluntary liquidation within your own timeframe is a preferable scenario to being forced into compulsory liquidation via a Winding Up Order.
How Much Will it Cost to Liquidate my Company?
This will depend on the size of the company and its debts, and the complexity of the case. For a smaller company with minimal or no assets, costs begin at around £4000. For larger companies with more assets to realize, the costs will be higher as it takes far longer for the insolvency practitioner to complete the work. In certain situations, it is possible to fund liquidations via directors redundancy pay, assuming the eligibility criteria is met.
What happens After I Have Liquidated my Company?
Once the liquidation process is complete, the company will be struck off the register at Companies House and cease to exist.
Directors will be free to start another company, or seek employment elsewhere. This is assuming there has been no disqualification order as a result of misconduct.