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What’s the best way to close my limited company?

There are several ways you can close a limited company. The most appropriate method for you will depend on certain factors, including whether the company can repay its debts. 

You can liquidate your company voluntarily using a Members’ Voluntary Liquidation (if it’s solvent) or Creditor’s Voluntary Liquidation (if it’s insolvent). Alternatively, you can remove it from the official register of companies via a process called Strike Off.

There are significant differences between Company Liquidation and Strike Off. Company Strike Off is a process that, as a company director, you can manage and administer yourself. There’s a small fee to pay and a relatively simple online process to follow.

If you choose liquidation, you must appoint a licensed Insolvency Practitioner to manage the process on your behalf. That increases the initial cost of the procedure, but as a formal process, it also ensures you meet all the relevant legal obligations.

So which is to be? Here we discuss the suitability, benefits and drawbacks of these company closure methods.

What is Company Strike Off?

Company Strike Off, also known as Voluntary Dissolution, is an informal way to close a solvent business you no longer need. You may want to retire, pursue a new challenge or close a dormant company that never traded. Whatever the reason, Strike Off is a cost-effective way to bring it to an end.

You can initiate the process by submitting form DS01 to Companies House online and paying a small fee (currently £44). If your company has multiple directors, more than half must sign the application before you submit it. Once you’ve submitted your application, you must also send a copy to all parties that might be affected, such as shareholders, creditors and employees, within seven days.

A notice will also be published in the Edinburgh Gazette giving two months’ notice that you intend to close the company. If no one objects, the company will be struck off the official register and cease to exist.

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Is my company eligible for Strike Off?

Although Strike Off is relatively quick and inexpensive, it’s not suited to every business. You cannot strike your company off if it has outstanding debts you cannot pay or ongoing legal proceedings against it. It also isn’t the most tax-efficient option if your business has substantial assets to distribute to its shareholders.

To apply for Strike Off, your business must be solvent and not have:

  • Traded or sold stock in the last three months
  • Changed its name in the last three months
  • Been threatened with liquidation
  • An active creditor agreement in place, such as a Company Voluntary Arrangement (CVA)

If you have traded or changed the company’s name in the last three months, you can still use the Strike Off procedure, but you must wait until there have been three months of inactivity before you apply.

Can I Strike Off a company with debts?

No. You can only use the Strike Off procedure if you can settle all the company’s outstanding debts. If it has debts you cannot pay, you must use an insolvent liquidation process, such as a Creditors’ Voluntary Liquidation.

If you try to dissolve a company with unpaid debts, your creditors are likely to object so they can keep your company active and take action to enforce the debt. Your actions will also be investigated and you could receive a penalty from the Insolvency Service. Potential penalties include fines, director disqualifications and personal liability for company debts.

Even if a creditor doesn’t object to your Strike Off and the business is dissolved, they can apply to reinstate the company to the official register for up to 20 years and then pursue the debt.

The pros and cons of Company Strike Off

The pros

  • It’s cheaper than liquidation
  • You can manage the process yourself
  • It’s relatively straightforward
  • You can complete the process in just three months 

The cons

  • Interested parties can object
  • It’s not the most tax-efficient closure method if your business has substantial assets
  • You cannot Strike Off a company with debts
  • A creditor can reinstate the company for up to 20 years
  • Any assets still registered to the business at the time of Strike Off become the property of The Crown.

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What is Company Liquidation?

The other way to close a limited company is through Company Liquidation. There are two voluntary liquidation processes you can use:

  • Members’ Voluntary Liquidation (MVL) – An MVL is a formal way to bring an end to a limited company that can settle all its debts (it’s solvent).
  • Creditors’ Voluntary Liquidation (CVL) – You can use a CVL to close a company with debts it cannot afford to pay (it’s insolvent).

In both processes, you must appoint a licensed Insolvency Practitioner to act as the liquidator and close the company on your behalf. The right procedure for you will depend on your company’s financial position.

Closing a solvent company – Members’ Voluntary Liquidation

Like Strike Off, Members’ Voluntary Liquidation (MVL) is a procedure to close a solvent limited company. You must appoint a liquidator to manage the process and pay them a fee. As part of that process, they will sell the company’s assets and use the proceeds to repay any creditors before distributing the remaining funds among the shareholders.

One of the main differences between Strike Off and a Members’ Voluntary Liquidation is how the distributions are taxed. If you dissolve the company, the first £25,000 is subject to Capital Gains Tax, while anything over that amount is treated as income.

In an MVL, all shareholder distributions are taxed as capital. You may also be eligible for Business Assets Disposal Relief, which will reduce the rate of tax you pay on qualifying assets to just 10%.

The pros and cons of Members’ Voluntary Liquidation

The pros

  • The liquidator handles the process on your behalf and ensures all your legal requirements are met
  • You pay less tax if the company has valuable assets
  • You may benefit from Business Asset Disposal Relief
  • The company cannot be reinstated

The cons

  • You must pay a liquidator’s fee (usually around £4,000)
  • The process takes longer than Strike Off
  • You may not be able to set up a company operating in the same or a similar industry within two years of the distribution date

Closing an insolvent company – Creditors’ Voluntary Liquidation

If your company cannot repay its outstanding debts before it closes, you cannot use Strike Off or a Members’ Voluntary Liquidation (MVL). Instead, you must use a formal insolvency procedure called a Creditors’ Voluntary Liquidation (CVL).

The process is very similar to an MVL. You must appoint an Insolvency Practitioner to act as the liquidator. They will wind down the company’s affairs and sell its assets. However, in this case, rather than paying the proceeds to the shareholders, they will distribute the funds among the company’s creditors in a pre-determined order. Any debts they cannot repay in full will be written off (unless you have signed a personal guarantee) and the company will be dissolved.

As part of the CVL process, the liquidator will investigate the conduct of the directors in the period leading up to the liquidation. You could receive a severe penalty if they find examples of wrongful or unlawful trading. On the other hand, a benefit of a CVL is that you may be eligible to claim director redundancy pay, with typical payouts averaging £10,000.

The pros and cons of Creditors’ Voluntary Liquidation

The pros

  • The business is closed down efficiently and you fulfil your legal duties as a company director
  • Any outstanding debts are written off
  • You may be eligible for director’s redundancy pay
  • It avoids a court process

The cons

  • Staff will be made redundant
  • Creditors will be able to pursue you personally for debts if you have signed a personal guarantee
  • Your conduct will be investigated and you could face serious penalties
  • You will not be able to start a company with the same or a similar name for five years

Take our 60 Second Test to understand your options

There are three main ways to close a company in Scotland. Taking our 60 Second Test will help our advisers identify the correct route forward for you and your company.

While all three closure options have their advantages and disadvantages, the right one for you will depend on a number of factors including the current financial position of the company and your plans for the future.

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Is Company Liquidation or Strike Off right for me?

That all depends on your company’s financial position. If your business is insolvent, you cannot use Strike Off and you must close it via a Creditors’ Voluntary Liquidation.

If your company can afford to pay its debts before you close it, Strike Off and Members’ Voluntary Liquidation are both possible closure methods. The right choice for you will depend on the value of your business’s assets and its complexity.

Need advice?

At Scotland Liquidators, we will discuss your circumstances and help you determine the most appropriate company closure method. We can then manage the procedure on your behalf and advise on director redundancy pay and Business Asset Disposal Relief. Please contact our team for a free, same-day consultation or arrange an in-person meeting at one of our offices in Scotland.

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Contact the Scotland Liquidators Team

There are several options when it comes to closing a limited company and it is vitally important you choose the one which is right for you, your company, and your creditors. Whether you are struggling with rising costs, falling trade, or impatient creditors, we are here to help.

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