.What Options Do You Have When Closing a Limited Company
To Close a limited company can be a protracted and drawn-out process depending on your situation.
You will generally need the board of directors’ and shareholders’ permission to dissolve a company. The process you’ll use to shut down the company will depend on whether it’s currently solvent. Able to pay its financial obligations. Or insolvent unable to pay debts or cover employee salaries, etc.
To close a limited company, the first question to ask is whether the closure is taking place where the business is still solvent or insolvent. It’s not always easy to determine what the response should be, and talking to an accountant, a firm of licensed insolvency consultants, or a solicitor might help you make a better decision.
If your limited company owes money to creditors, you cannot dissolve it legally by yourself. Creditors are required to receive equal treatment, which can only be fulfilled by a licensed insolvency practitioner (IP). They will recommend a creditors’ voluntary liquidation as the best option.
We will now take a look at what different options are available and in what circumstances they will be suitable for your needs:
Options For a Solvent Limited Company
A solvent company is able to pay its debts and has no impending legal action from creditors (it has enough business assets to cover all of its current liabilities). When a solvent company closes, there are two options available:
Members’ Voluntary Liquidation (MVL)
If your company can pay its liabilities and financial obligations, it could seek to close via a members’ voluntary liquidation (sometimes referred to as solvent liquidation).
Is an MVL suitable for your limited company:
The best choice for the company that has more than £25,000 in spare money.
If you are a limited company director who wishes to retire. Or whose firm is no longer tax-efficient, for example. You might opt for am MVL.
Although this method may appear quite tedious. To some, many limited company directors believe that this is the most tax efficient way of closing a company. Shareholders can obtain the true value of the company instead of being charged capital gains tax and income tax.
Steps required to apply for an MVL:
1. A Resolutions must be passed by Shareholders for a voluntary winding up
2. A declaration of solvency must be signed by at least 75% of the directors
3. You must appoint a licensed IP to handle winding up the company. This liquidator will take charge of the limited company and seek to repay outstanding liabilities by liquidating company assets.
4. Contact Companies House within 15 days of the resolution being passed to inform them of the decision
Dissolution (striking off)
To dissolve (strike off) a company, you must file a DS01 form with Companies House, which all of the company’s directors must sign and submit within a week of submitting this documentation. You must also give copies to shareholders, workers, and debtors.
Striking off a company with unpaid liabilities
If you try to dissolve your company with outstanding obligations to HMRC (such as corporation tax) or another creditor, it’s highly likely that they will file an Objection to Company Strike Off.
This is particularly topical at the moment with HMRC taking a hardline approach to the misuse of Bounce Back Loans and particular attention being paid to companies that apply for dissolution with an outstanding bounce back loan balance. Particular attention should be made to government legislation “Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Act 2021″
HMRC may attempt to drive your company into liquidation if they oppose to its closure with Companies House. You could ask an IP for guidance if you find yourself in this scenario. If you find yourself in this situation, you may want to reach out to an IP for advice.
Is Dissolution (Striking Off) Suitable For Your Limited Company:
If your company has not traded in the past 3 months or changed the company name within that time frame. Then it is eligible for dissolution.
When there is less than £25,000 cash and the company is not in danger of insolvency proceedings by any creditor, often times striking off is the easiest solution that requires little money.
If You Are the Director of an Insolvent Company
A firm is insolvent when the debts are greater the the asset valueThe interests of the company’s creditors take precedence over those of the board or shareholders.
If your limited company struggles to pay its bills and a balance sheet review displays that the company’s liabilities exceed assets, it will be insolvent.
If this is the case, you should immediately seek the advice of an IPwho will assist you in closing your business through a Creditors Voluntary Liquidation (CVL).
Creditors’ Voluntary Liquidation (CVL)
If your company is insolvent, it is best to enter a creditor’s voluntary liquidation. Instead of allowing the situation to worsen and risking a winding up petition. With a compulsory liquidation initiated by one of your creditors.
A CVL provides directors the ability to act quickly amidst creditor pressure and halt any further legal action or a creditor starting compulsory liquidation proceedings against your company. Additionally, it allows your employees to claim redundancy pay and other benefits through the Insolvency Service.
The director must submit a ‘winding-up resolution’. This ‘winding-up resolution,’ Requires 75% of shareholder to approval. The shareholders must be present and provide their approval for the closure of an insolvent business. What would happen if you only have less than 75% os shareholder approval ?
You need to make a choice. You have 15 days to submit the resolution to Companies House. And published in The Gazette no later than two weeks.
You must then secure the services of an IP to complete all the legal processes and obligations, as well as the assets of the company for the benefit of the company creditors.
Is a CVL suitable for my limited company:
If you want to close your insolvent company and cannot repay all the company’s outstanding debts owed. Then this is likely to be the best option for you.
By appointing an Insolvency Practitioner, they can provide expert advice and manage the process of liquidating the company’s assets, communicating with creditors, and distributing surplus funds (if applicable).
Who can I contact for help?
Here at Company Doctor, our insolvency practitioner licensed by the Insolvency Practitioners Association and with decades of experience can offer you the expertise and the professional advice you need to assist you in the process of the CVL. Simply complete the form or give us a call today.
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What Options Do You Have When Closing a Limited Company?
