How Do I Close My Limited Company?
There are many potential reasons for business closure; perhaps the business is struggling financially, you wish to retire, or you simply want to move on to another venture.
In this guide, we’ll be explaining the different means of business closure, when they’re most appropriate, and other alternative options.
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How Do I Close My Insolvent Company?
Insolvency is a tough prospect for any business owner. Nobody starts a company with the intention to fail, but when things do decline, it’s important to know how to handle the situation properly.
When handled correctly, owners can expect a clean exit from the company. But, when handled incorrectly, owners may be faced with significant financial and legal fallout.
Creditors’ Voluntary Liquidation (CVL)
A Creditors’ Voluntary Liquidation – or CVL – is the most common way of closing down businesses in the UK. It allows businesses to close in a way that helps to satisfy company creditors while also protecting the financial security of business owners:
- Company assets are liquidated to repay creditors
- Remaining debts are written off
- Employees can claim through the Redundancy Payments Service
- Directors are protected legally
As a formal insolvency procedure, a CVL must be carried out by a licensed insolvency practitioner, like those of our team. While this does attract some professional fees, these are usually paid for with the funds raised from the sale of company assets during the liquidation, saving personal expense.
Compulsory Liquidation
For many insolvent directors, it can be difficult to take the initiative and pursue voluntary liquidation. It’s natural to want to keep trading until left with no other choice – this often results in compulsory liquidation. Some directors actually wait for compulsory liquidation in an attempt to avoid liquidation fees.
However, compulsory liquidation is something to be avoided. Waiting to be forced into liquidation often results in directors trading whilst insolvent, which is grounds for wrongful trading charges, as it can make the position of creditors worse.
Compulsory liquidation also invites more scrutiny into a director’s conduct. The Official Receiver will review their past 2 years of activity, looking to find evidence of misfeasance, wrongful trading, or fraudulent trading. Liable directors can be disqualified from future directorship, made personally liable for company debts, fined, or even imprisoned.
How Do I Close My Solvent Company?
Sometimes you may want to close your company of your own volition – you may want to retire, the market may be beginning to turn, or you may want to move on to another venture.
There are several ways to close down a solvent company. Deciding which solution is most appropriate depends on how many assets the business has.
Members’ Voluntary Liquidation (MVL)
A Members’ Voluntary Liquidation – or MVL – is the most tax-efficient way to close down a solvent company with assets totalling over £25,000:
- Returns to company members are subject to Capital Gains Tax, not Income Tax
- Members can potentially qualify for Business Asset Disposal Relief
- Minimises personal involvement
Under an MVL, only the profit on your assets is taxable, not the entire amount received – if you qualify for Business Asset Disposal Relief, this will be at a rate of just 10%. The process must be carried out by an insolvency practitioner, but the fees of the liquidation pale in comparison to the savings made by the beneficial tax rates.
Voluntary Strike-off
A voluntary strike-off can be a good option if you’re looking to close a business with total assets valued at less than £25,000. You can claim Capital Gains Tax on returns under £25,000. There are some stipulations to keep in mind:
- The business must not have traded or changed its name in the last 3 months
- Assets must be disposed of beforehand to avoid being assumed by the Crown
- The business must not be in unresolved debt or facing insolvency
- You cannot qualify for Business Asset Disposal Relief
For smaller businesses that aren’t in debt but don’t have a lot of money or assets, voluntary strike-off can be a great option. The application form costs just £10 to complete and you can carry out the process yourself. However, you’ll need to be careful in order to avoid losing assets or encountering legal issues.
Alternatives to Liquidation
You may be considering closure due to financial pressure, despite wanting to keep the company going. If this is the case, there are some recovery options available for you to explore.
Company Voluntary Arrangement (CVA)
A Company Voluntary Arrangement – or CVA – is an agreement between a business and its creditors which helps to make debts more affordable, keeping the business afloat:
- A repayment plan which stretches out debt
- Freezes interest and charges on debt
- Provides legal immunity from debt-recovery proceedings
- Can be adjusted if payments become difficult
A CVA has to be approved by 75% of your creditors to be put into place. To get accepted, you’ll need to be able to prove that creditors will get a better outcome than they would in a liquidation and that the business will be viable moving forward.
Administration
Administration hands control of the business over to an administrator, who must be a licensed insolvency practitioner. The process aims to achieve one of three outcomes:
- To save the business as a going concern
- To get a better outcome for creditors than they’d get in a liquidation
- Realise assets to make a return to secured or preferential creditors
The administrator will look to save the company where possible, before defaulting to another option like selling or liquidating the company. The process can be expensive, but can allow time for the business to regroup, reorganise cash flow, and regain financial stability.
Speak to an Expert Today
If you need to close your limited company, speak to an insolvency practitioner.
Our team can walk you through the options available, guiding you to the best solution for you.
Get in touch to book a free, no-obligation consultation today.
