How can I close my company with no money?
If your company cannot pay its debts when they are due and/or its liabilities are greater than its assets, it’s insolvent. When your company becomes insolvent, you have a legal duty as a company director to maximise the interests of your creditors.
You can do that by ceasing trading and putting the company into insolvent liquidation via a process called Creditors’ Voluntary Liquidation (CVL). But if there’s no money left in the business, how will you pay the liquidator’s professional fee?
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Is there an alternative to voluntary liquidation?
If your company is insolvent and no longer financially viable, you can liquidate it voluntarily via a CVL. Alternatively, you can wait for one or more of your creditors (parties you owe money to) to force you into Compulsory Liquidation. A creditor like HMRC can do that by issuing a Winding Up Petition against your business. In that case, the petitioning creditor will pay the costs associated with the process.
That might sound like an attractive alternative, but waiting for a creditor to force you into Compulsory Liquidation is a risky approach to take. That’s because, if you wait for a creditor to liquidate the company and you increase their losses as a result, you could become personally liable for those debts.
The liquidator will also conduct a more rigorous investigation into your conduct in the period leading up to the company’s insolvency. If they find examples of misconduct or unlawful trading, you could be fined, have to repay company debts or be disqualified from acting as a director for up to 15 years.
Who pays for Company Liquidation?
In theory, the company should pay to liquidate itself as the limited company structure protects you from the business’s liabilities. The liquidator will sell the company’s assets to raise money to repay the creditors. The liquidator will become a creditor of the company and use the proceeds from the sale of the assets to cover their fee.
However, if the company does not have sufficient assets to pay the liquidator’s fee, the directors can sometimes cover it themselves. For many, that is preferable to the risks associated with Compulsory Liquidation. A simple Creditors’ Voluntary Liquidation costs around £4,000-£5,000.
How can I pay for a voluntary liquidation?
The sale of company assets
The default way to pay for a Creditors’ Voluntary Liquidation is through the sale of the company’s assets. The liquidator will sell the assets and use the proceeds to cover their fee before distributing the remaining funds to the company’s creditors.
Pay some or all of the fees yourself
If the company cannot meet the cost of liquidation, it’s common for the directors to pay some or all of the fees themselves. You could use savings or even take out a small loan.
Negotiate a repayment plan
If you don’t have the funds to meet the full cost upfront, you may be able to negotiate an instalment plan with the liquidator. That will allow you to spread the cost over time, but not all liquidators offer this option.
Use your director’s redundancy pay
Many company directors don’t realise that they could be eligible to claim redundancy pay when they enter insolvent liquidation. To be eligible, you must:
- Be owned money by the company – that could be your original investment in the business
- Have worked under a written, oral or implied employment contract for at least two years
- Have worked a minimum of 16 hours a week
- Have received a salary through PAYE
- Have performed more than an advisory role
If you meet the criteria, you will receive a payout based on your years of service that averages around £10,000. That could be enough to pay the liquidator’s fee and give you some financial security.
Can I close the company using the Strike Off procedure?
Company Strike Off, also called Voluntary Dissolution, is the most inexpensive way to close a limited company. You can complete the process by submitting form DS01 online and paying a small fee (currently £44). However, you can only use Strike Off if your business is solvent.
Companies House may not grant the application if you try to dissolve a company with debts. Even if it does, your creditors can object and pursue you for the money they are owed. You’ll also face questions about why you tried to dissolve an insolvent company, which can lead to personal liability for company debts and director disqualification.
Need advice?
At Scotland Liquidators, we can advise you on the steps involved in voluntary liquidation, including the costs and how you can fund them. We can also advise you on claiming redundancy pay as a director. Call our team for a free, same-day consultation or arrange an in-person meeting at one of our offices in Scotland.
I knew I needed to close my company but I wasn’t sure how to go about this with large debts that I was unable to repay. Scotland Liquidators clearly explained my options and held my hand throughout the entire process.
Catherine Muller | Director
I would highly recommend Scotland Liquidators to anyone considering closing their business. From the first phone call I knew where I stood and what my options were. I cannot thank them enough.
Jonathan Booth | Director
Scotland Liquidators helped me close my company last year after I made the tough decision to stop trading. My advisor was patient, knowledgeable, and supportive from start to finish. Many thanks.
Colin Franklin | Former CEO
