Company closure options that enable you to start afresh
There are many reasons why it might be time to hang up your company director hat. You may be ready to retire, want a new challenge or no longer need the business. On the other hand, your limited company might be experiencing financial problems and you want to escape the constant stress and creditor pressure.
Whatever the reason, the good news is that there are several procedures you can use to close your company and walk away. The most appropriate company closure method in your case will depend on the financial position of the business and the value of its retained profits and physical assets.
My company is solvent – how do I close it and walk away?
My company is solvent – how do I close it and walk away?
A company that can pay all its debts is said to be solvent. If your company is solvent, you can use two main closure methods: Strike Off (also known as Voluntary Dissolution) or a Members’ Voluntary Liquidation (MVL). Here we run through the requirements and implications of each to help you find the most suitable way to bring your business to an end.
Strike Off
If your company can pay its debts and has minimal retained profits and physical assets to distribute to the shareholders, you can use the Strike Off procedure to remove it from the official register at Companies House.
One of the benefits of this procedure is that you can apply and administer it yourself. First, you must wind down the company’s affairs. You can do that by terminating ongoing contracts, repaying debts, transferring assets away from the company, submitting final accounts and tax returns, and closing the business’s bank accounts.
You can then apply for Strike Off online or by sending the paper form DS01 to Companies House with a small fee. If you complete the form correctly and your business is eligible for the process, a Strike Off notice will be published in the Gazette. If nobody objects to your Strike Off, the company will be removed from the register after around two months and cease to exist.
Is Strike Off right for my company?
Strike Off might be the most suitable closure method for your company if:
- It’s solvent
- Has retained profits and physical assets worth less than £25,000
- Has not traded or changed its name in the last three months
- Does not have outstanding legal action against it
- Is not in an ongoing creditor agreement such as a Company Voluntary Arrangement (CVA)
Members’ Voluntary Liquidation (MVL)
If your company is solvent and has a significant value of retained profits and/or physical assets, a Members’ Voluntary Liquidation will usually be the most tax-efficient way to close it and walk away.
To initiate an MVL, you must sign a Declaration of Solvency stating that the company can pay its debts within 12 months and appoint a licensed Insolvency Practitioner to liquidate it on your behalf. They will wind down the business’s affairs, value and sell its assets, and repay any debts before removing it from the official register.
The liquidator will distribute the money raised from the sale of assets among the shareholders according to their ownership stake. The key benefit of a Members’ Voluntary Liquidation is that you pay Capital Gains Tax on all the distributions. That compares favourably to Strike Off, where all profits over £25,000 are taxed as income. You may also be eligible to claim Business Asset Disposal Relief on the proceeds of an MVL, which further reduces the tax liability, particularly for higher-rate taxpayers.
Is Members’ Voluntary Liquidation right for my company?
A Members’ Voluntary Liquidation could be the perfect way to close your company and walk away if:
- You can settle all debts within 12 months of the liquidation
- At least 75% of the shareholders (by value) agree with the liquidation
- It has assets and retained profits worth over £25,000
- There’s no ongoing legal action
- There are no outstanding repayment agreements with creditors
My company is insolvent – how do I close it and walk away?
If your company cannot afford to pay its debts when they’re due, or the value of its liabilities exceeds its assets, it is insolvent. At that point, you must contact an Insolvency Practitioner to explore your company rescue and closure options. If the business is no longer financially viable or you no longer want to run it, you must liquidate it so its debts can be dealt with appropriately. You can do that voluntarily via a Creditors’ Voluntary Liquidation.
Creditors’ Voluntary Liquidation (CVL)
You initiate a Creditors’ Voluntary Liquidation by appointing a licensed Insolvency Practitioner. Acting as the liquidator, they will take control of the business and wind it down in an efficient and orderly manner. Like a Members’ Voluntary Liquidation, they will value and sell the company’s assets. However, in this case, they will invite claims from company creditors and distribute the proceeds among them according to a strict repayment hierarchy.
The liquidator will then remove the company from the official register and any remaining debts will be written off. As long as you acted according to your duties in the period leading up to and during the insolvency, you can walk away from the business without fear of repercussions. If the liquidator finds evidence of any misconduct, you could face consequences such as being made personally liable for company debts and being banned from acting as a company director.
The sale of assets usually covers the cost of a Creditors’ Voluntary Liquidation, and you may be eligible to claim director redundancy pay, which averages around £10,000.
Is Creditors’ Voluntary Liquidation right for my company?
Creditors’ Voluntary Liquidation could be a suitable closure method for your business if:
- It’s insolvent
- At least 75% of shareholders (by value) agree to the liquidation
- You want to retain control over the timing of the liquidation
- You want to fulfil your legal obligations and avoid the court processes associated with Compulsory Liquidation
- You want to avoid the increased risks associated with Compulsory Liquidation
Friendly and professional company closure advice
Friendly and professional company closure advice
If you are ready to close your company and walk away, whether it’s to retire or bring an end to its financial problems, we can help. At Scotland Liquidators, we will assess your circumstances and explain your options. We can also guide you through the most appropriate closure process from start to finish. Please get in touch for a free consultation or to arrange a meeting at one of our local offices.
