With almost four decades of experience in business, Mike Smith is one of the founders of Company Debt and one of the UK’s most experienced mediators with HMRC.
Having previously owned several of his own successful companies and occupied senior roles as a director within both Legal and General and Sun Alliance during separate periods of his career, Mike founded Company Debt with a genuine desire to help stressed directors in challenging circumstances. He is also an expert in the alternative finance sector.
Closing a UK holding company or subsidiary safely means selecting the correct statutory route under the Insolvency Act 1986 or the Companies Act 2006. Done properly, liquidation draws a clear legal line around the entity being closed. Done incorrectly, liabilities can ripple across the group through VAT grouping, guarantees, inter-company balances or wrongful trading exposure.
Directors who sit across multiple group boards must take particular care. When one company becomes insolvent, duties shift toward creditors. Choosing the wrong route, or delaying action, increases the risk of personal contribution orders, disqualification proceedings and avoidable losses to the wider group.
Before selecting a route, four statutory concepts matter.
Holding company and subsidiary
Under Companies Act 2006 s.1159, a company is a holding company if it controls another company’s voting rights, board composition, or holds it through a chain of subsidiaries. A subsidiary is defined by the same section.
Shares in subsidiaries are assets of the holding company in liquidation.
Solvent vs insolvent
Under the Insolvency Act 1986, a company is insolvent if it cannot pay its debts as they fall due (cash-flow test) or its liabilities exceed its assets (balance-sheet test).
“Connected” and “associate” definitions appear in Insolvency Act 1986 s.249 and s.435. Certain transactions with connected persons are subject to longer statutory “relevant time” periods when challenged as:
transactions at an undervalue (s.238),
preferences (s.239), or
certain floating charges (s.245).
The applicable look-back period depends on the specific provision and the insolvency test in s.240, not a blanket two-year rule.
Why the right liquidation route matters for the whole group
Wrongful trading
Under Insolvency Act 1986 s.214, if directors continue trading when they knew or ought to have concluded there was no reasonable prospect of avoiding insolvent liquidation, the court may order them to contribute personally.
Where the same directors sit across group entities, conduct in one company can affect their overall fitness.
VAT group liability
HMRC guidance confirms that VAT group members are jointly and severally liable for VAT debts incurred while grouped. If one member enters liquidation, HMRC may pursue any other group member for outstanding VAT.
Statutory insolvency set-off
Under Insolvency Rules 2016 r.14.25, mutual dealings between the company and a creditor are automatically set off at liquidation. Inter-company receivables and payables are netted as at the date of liquidation.
Director conduct reporting
Office-holders must submit a conduct report to the Insolvency Service within three months of appointment. Proven unfit conduct can lead to disqualification under the Company Directors Disqualification Act 1986 s.6 (2–15 years).
Route selector: CVL, compulsory, MVL or strike-off?
Company has ceased trading and meets Companies Act strike-off conditions
Cheap (£13 online DS01 / £18 paper)
Creditors can object; company can be restored; not suitable where debts remain
Compulsory liquidation costs
For creditor petitions, GOV.UK confirms:
£2,600 deposit to the Insolvency Service
£343 court fee
Court fees are governed by HMCTS fee orders and should always be checked against the current EX50 schedule.
Bank accounts during petition
Under Insolvency Act s.127, dispositions of company property after the commencement of winding-up may be void unless validated by the court.
Banks often freeze accounts when notified of a petition due to this risk. A validation order application must be made to court; applicable fees depend on the HMCTS fee schedule.
Timelines
CVL
Shareholders pass winding-up resolution.
Resolution sent to Companies House within 15 days.
Gazette notice published within 14 days.
MVL
Directors swear declaration of solvency.
Shareholder resolution within 5 weeks.
Filing and Gazette notices within statutory deadlines.
Compulsory
Petition presented.
Petition advertised in The Gazette at least 7 business days after service and at least 7 business days before the hearing.
If order made, Official Receiver becomes liquidator.
Strike-off
File DS01.
Send copies to creditors and other required parties within 7 days.
Gazette notice issued.
Dissolution no sooner than 2 months after publication if no objection.
Group-specific complications
Intra-group loans
Under r.14.25 set-off, only the net balance is provable.
Floating charges to connected parties
Under s.245 IA 1986, floating charges granted to connected persons within the relevant period are invalid except to the extent of new value.
VAT grouping
Joint and several liability continues for VAT incurred during grouping.
Pensions
Defined-benefit multi-employer schemes may trigger statutory debt under pensions legislation (outside insolvency statute but potentially material to group exposure).
Antecedent transactions
Transactions at undervalue (s.238) and preferences (s.239) within the relevant statutory period may be challenged by the liquidator.
Directors’ duties in group insolvency
When insolvency is probable, directors must prioritise creditors’ interests. They must:
Preserve records
Cooperate with the liquidator
Avoid preferential or undervalue transactions
Avoid incurring new liabilities without reasonable prospect of payment
Re-use of a prohibited name following insolvent liquidation is restricted under Insolvency Act s.216. Breach is a criminal offence and may create personal liability.
Employees, creditors and subsidiaries
Employees
On insolvency, employees may claim redundancy, unpaid wages, holiday pay and statutory notice pay through the Redundancy Payments Service via GOV.UK.
Creditors
Secured creditors recover from charged assets. Insolvency set-off applies. Dividends follow statutory order of priority.
Subsidiaries
If the holding company is petitioned, its bank accounts may be frozen by banks. Shared cash management arrangements should be reviewed urgently.
Alternatives to liquidation
Administration
Provides statutory moratorium while rescue options are explored.
Share sale
May allow business continuity without formal insolvency, subject to unwinding group guarantees and VAT arrangements.
FAQs
1) Can we strike off a subsidiary that owes money to the parent?
Strike-off is not an alternative to formal insolvency. Creditors must be notified and may object. If debts remain unpaid, liquidation is usually the appropriate route.
2) What happens to intra-group loans?
They are automatically set off under Insolvency Rules r.14.25 and only the net balance is provable.
3) Do all group directors face disqualification?
Only directors (including shadow directors) of the insolvent company are automatically reported, but conduct across all appointments may be reviewed.
4) Can we reuse the company name?
If the company entered insolvent liquidation, s.216 IA 1986 restricts reuse of the same or similar name for five years unless statutory exceptions apply.
5) Are dividends clawed back?
If paid when the company was insolvent or within the relevant statutory period and meeting the legal tests, they may be challenged under s.238 or s.239.
6) How long does a CVL take?
There is no fixed statutory duration beyond initial filing requirements. Asset realisation and creditor adjudication determine timing.
7) Will VAT grouping end automatically?
Not necessarily. Control tests under Companies Act s.1159 still apply. HMRC must be notified of changes to representative members.
8) Who pays the liquidator if no funds exist?
Liquidators are paid from realised assets. If insufficient, shareholders or related parties may need to indemnify costs. Otherwise compulsory liquidation may follow.
9) Can assets be moved before liquidation?
Transfers within the statutory relevant period may be reversed under s.238, s.239 or s.245. Directors should seek professional advice before any transfer.
10) What about personal guarantees?
Personal guarantees are separate contractual obligations and are not automatically extinguished by company liquidation.
11) Can an MVL convert to a CVL?
Yes. If the declaration of solvency proves incorrect, the liquidation must proceed as a creditors’ voluntary liquidation.
12) Are Scotland and Northern Ireland different?
Yes. Insolvency (England and Wales) Rules 2016 apply only to England and Wales. Separate procedural rules apply in Scotland and Northern Ireland.
Your next step
Before passing any resolution, prepare:
Latest balance sheet
Full schedule of inter-company balances
Details of VAT grouping
Details of guarantees and security
A licensed insolvency practitioner can confirm the correct statutory route and outline costs based on current HMCTS and Insolvency Service fee schedules.
