Company Closure Advice
Operating a self employed business is stressful especially if you have debt problems
It is important to close a limited company the right way. You and your fellow directors must protect yourselves and secure all assets. Companies close for many reasons:-
- Your company may have mounting debts and the directors have agreed on closure.
- You may be planning to retire.
- You may be planning to open a new company.
- Maybe the company isn’t generating sustainable profits.
- Maybe the directors have irreconcilable personal difficulties.
If you are the director of a solvent or insolvent limited company, you should make it a priority to speak to one of our business advisors at TBDA, we can help. Don’t let the situation drift on, as problems have a habit of getting worse and spiralling out of control. TBDA can provide help and advice to company directors on a whole range of business closure scenarios. Call us today to arrange a free no-obligation consultation online, over the phone, or in-person.
Striking off a limited company (solvent)
If you want to close down a solvent limited company that has not traded for at least three months, an application can be made to Companies House to strike off the company from its register. This is a viable way to close your limited company and draw a line under matters. Once the company is removed from the register, it cannot trade, make payments or sell company assets. A notice is published in the Gazette giving any interested parties 3 months notice that the company will be struck off. This is done to allow any possible creditors to come forward and lodge a claim or an objection. Details regarding the voluntary strike off of a company can be found here. It generally takes at least 3 months from the date you submit the completed DS01 form for your company to be struck off from the Companies House register. Several rules apply and The Business Debt Advisor can advise throughout the process. You can only strike off your company if it:
- has not traded or sold off any stock in the last 3 months
- has not changed names in the last 3 months
- is not threatened with liquidation
- has no agreements with creditors, for example, a Company Voluntary Arrangement (CVA)
If your company does not meet these conditions, you’ll have to voluntarily liquidate your company instead. Preparation is the key and several things must be done before you start the strike off:-
- Complete all outstanding work and collect monies due (new work or taking deposits must not be carried out if they extend beyond the official strike off date)
- Follow the detailed rules regarding staff redundancy.
- Pay staff their final wage and holiday entitlements, bonuses etc.
- Selling company assets and inventory and distributing the proceeds among the shareholders
- Prepare final accounts and a company tax return for HMRC and Companies House. Stating these are the final accounts.
- Pay HMRC the final balance of Corporation Tax, PAYE, NI and any other tax liabilities
- Tell HMRC to close down the company’s payroll scheme
- Deregister for VAT and settle any VAT bills.
- Pay all outstanding debts
- Close all company bank accounts
- Transfer domain names and social media assets
- Close all utilities and other monthly services
- Distribute any business assets to the shareholders. Any assets not distributed are given to the government “bona vacantia”, as part of a voluntary strike-off.
Company Liquidation (Insolvent)
If your company can’t pay its bills, then it’s technically insolvent. Your creditors must be paid before you and your fellow directors are paid. The company must be liquidated in order to pay off the creditors. If you don’t pay, your company could be forced into compulsory liquidation. But this can be avoided by applying for a Company Voluntary Arrangement (CVA).
Compulsory Liquidation, usually referred to as “Winding-Up”, is the process that winds up an insolvent company through the courts.
Insolvency is defined as when:- Creditor(s) are owed more than £750 and have either served a 21 day demand which has not been met or judgment has been given or it is proved to the satisfaction of the Court that the company cannot pay its debts as they fall due or the company’s liabilities exceed its assets including contingent liabilities.
Compulsory Liquidation (Winding-up) is a court procedure usually initiated by a creditor of the company when all other debt collection procedures have failed. This is done via a petition to the Court. A winding-up order can be made if the company:
- has decided that it should be wound up by the High Court
- registered as a public limited company more than a year previously but has not yet been issued with a trading certificate
- is an ‘old’ public company
- has not begun trading within a year of its incorporation or has suspended its trading for a whole year
- has less than two shareholders, unless it is a private company limited by shares or guarantee
- cannot pay its debts
- should be wound up because the Court forms the opinion that this would be just and equitable
The petitioner must serve a sealed copy of the petition, which means it has been lodged in court, on the company and also advertise the petition in the London Gazette. There will be a hearing at Court and the company can either oppose or accept the order. It is vital that the company seeks legal help and advice from solicitors with insolvency knowledge. Read more about Company Liquidation.
Company Voluntary Arrangement (CVA)
If your company can’t pay its bills, then it’s technically insolvent. Your creditors must be paid before you and your fellow directors are paid. The company must be liquidated in order to pay off the creditors. If you don’t pay, your company could be forced into compulsory liquidation. But this can be avoided by applying for a Company Voluntary Arrangement (CVA).
Compulsory Liquidation, usually referred to as “Winding-Up”, is the process that winds up an insolvent company through the courts.
Insolvency is defined as when:- Creditor(s) are owed more than £750 and have either served a 21 day demand which has not been met or judgment has been given or it is proved to the satisfaction of the Court that the company cannot pay its debts as they fall due or the company’s liabilities exceed its assets including contingent liabilities.
Compulsory Liquidation (Winding-up) is a court procedure usually initiated by a creditor of the company when all other debt collection procedures have failed. This is done via a petition to the Court. A winding-up order can be made if the company:
- has decided that it should be wound up by the High Court
- registered as a public limited company more than a year previously but has not yet been issued with a trading certificate
- is an ‘old’ public company
- has not begun trading within a year of its incorporation or has suspended its trading for a whole year
- has less than two shareholders, unless it is a private company limited by shares or guarantee
- cannot pay its debts
- should be wound up because the Court forms the opinion that this would be just and equitable
The petitioner must serve a sealed copy of the petition, which means it has been lodged in court, on the company and also advertise the petition in the London Gazette. There will be a hearing at Court and the company can either oppose or accept the order. It is vital that the company seeks legal help and advice from solicitors with insolvency knowledge. Read more about Company Liquidation.
Creditors’ Voluntary Liquidation
Creditors’ Voluntary Liquidation (CVL) is also known as ‘insolvent liquidation’. It is a procedure that can be instigated by the director(s) of an insolvent company, where the shareholders agree that the business should cease trading. This is the most commonly used form of liquidation in the UK.
When the directors’ have resolved that the company should enter into CVL, all trading must cease and company assets will be sold in order to repay its liabilities. Secured creditors’ with a fixed charge will generally take priority, followed by creditors’ with a floating charge, and unsecured creditors.
When is a CVL a suitable option?
A CVL is likely to be the most suitable option if a company has debts it cannot afford to repay and there is no longer a viable business to be saved. Many companies trading in the UK at present may find themselves in an insolvent position or suffer from short-term cash-flow difficulties. This situation, in itself, does not mean that a CVL would be the most appropriate solution and careful consideration must be given to all of the relevant circumstances.
It is always important to take prompt action if a company simply does not have the ability to continue trading, without worsening the position for its creditors’. Read more about CVL.
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Client Story
Shirley and her husband were involved as partners in the purchase of a potential development with another couple. Unfortunately part way through the development the relationship between the 2 couples broke down and Shirley and her husband decided to exit the deal and hand over their share to the other party. This resulted in action taken against Shirley’s husband and he chose to petition for Bankruptcy. At the time no action was taken against Shirley. However, some years later the other party issued a writ against Shirley and entered into a Deed of compromise to repay of £57,000 the debt by monthly repayments. Shirley’s sought advice from The Business Debt Advisor team on Shirley’s behalf. Shirley’s health had been seriously effected by a bout of cancer and the stress of the debt was effecting her recovery. As Shirley and her husband lived in rented accommodation and had minimal assets, it was clear that bankruptcy was really the only sensible option. The Business Debt Advisor team helped Shirley pull together financial information on her assets which were minimal plus her debts and income and expenditure. We helped her complete her bankruptcy application online and her husband who was still working, helped out with the application fee of £680. Within days Shirley was bankrupt and her experience of dealing with the Official Receiver was very positive. They agreed with her that she would affordable pay income contributions of £210 per month for a 3 year period.