The term ‘winding up a company’ is used in multiple insolvency situations and refers to several types of company closure.
It either refers to the process of voluntary winding up, in which the company directors decide to formally close a company that has reached the end of its natural life.
It may also be used to refer to involuntary situations when a creditor such as HMRC is initiating the process of forcing a company into liquidation, with the aim of debt recovery. The creditor may start this process by serving your company a winding up petition.
This article will explain both of the common meanings and their business ramifications.
What is Meant by ‘Winding up a Company?’
Winding Up is a term used in business for closing, dissolving or shutting down a company.
Since limited companies are a legal entity in their own right you can’t simply fold the business without taking care of the legal aspects which include selling assets, paying creditors if there are any, and informing companies house of your decision.
Who can Apply for Winding up a Company?
In the case of solvent, or voluntary insolvent winding up, the directors would be the ones to apply or instigate the winding up process via collaboration with an insolvency practitioner such as ourselves.
Where a company is being pressured to wind up by a creditor, it will be the creditor that forces the winding up via a Winding up Petition that results in compulsory liquidation.
What are the Types of Winding up?
- Solvent – Closing down a solvent business is also known as a Members’ Voluntary Liquidation
- Insolvent – this can be voluntary or compulsory
- Dissolution or Striking Off
How to Wind Up a Solvent Company
To wind up a business in the UK that is solvent, you should use a process known as Members Voluntary Liquidation.
This process best applies to director with assets of 25k or greater (after all debts have been settled)
You can read our comprehensive article here on Members Voluntary Liquidation
Can I just Let the Company Go Dormant instead of Winding it Up?
As long as the company is not currently trading, there is the alternative which is to let it become dormant.
This can be a good solution for tax purposes, assuming there’s no income entering the business. It also requires you to still return an annual income tax and company confirmation statement to Companies House.
What about Striking Off the Company?
If the company is solvent but has assets below 25k, then striking off may be the correct process.
This is a simpler procedure than an MVL and one which can be more cost effective since you do not need an insolvency practitioner to complete the process.
Read our full article on Striking Off a Company from the Register
How to Wind up an Insolvent Company (Liquidation)
If your company is insolvent, then a Creditors’ Voluntary Liquidation is the correct method.
Offering more control than compulsory liquidation, the CVL process involves the directors choosing an insolvency practitioner who will then liquidate the company. This method offers significant advantages to that of being compulsorily wound up, as we explain below.
Read a full article here on Voluntary Insolvent Liquidation
What is a Compulsory Winding up of a Company?
Also known as ‘winding up by the court’, the process of being compulsorily wound up is when a creditor tries to force you to pay them by the threat of a winding up petition, a final demand document that gives you just 7 days to pay up or be shut down permanently.
The Threat of a Winding up Petition
If your company has been issued a winding up petition, you should seek advice, immediately. The directors will start to lose control as soon as the winding up petition is advertised in the Government’s Insolvency Register (The Gazette), and the company bank accounts will be frozen.
We are very experienced at fighting winding up petitions and with HMRC negotiations and we have been successful in doing so. In the majority of cases, we can usually rescue the business, or help to agree on an arrangement with HMRC for substantial limited company tax debts.
Knowing who to trust can be difficult when considering winding up a limited company so make sure you read through our testimonials page. If necessary, we can also arrange for you to speak with some of our previous clients as further testament to the quality of our company winding up services.
How Long does Winding up a Company take?
Timeframes for liquidation are tricky and dependent upon the size of the company. Usually it would be expected to take between 6 months and 1 year from start to finish.
A solvent winding up (MVL) takes about 3 months from the point of entering the process.
What are the Consequences of Winding up a Company?
Whether the company is solvent or insolvent, the consequences will be the ultimate closure of the company and the striking off from the register at Companies House. It will legally cease to exist.
Prefer to talk? Speak with one of our specialist team members today on08000 746 757 to learn more about winding up a company, or alternatively use the live support facility at the bottom of the page to get an answer fast.