How can I close my company and walk away?
There are many reasons why the time might be right to close your limited company. Your priorities can change, the demand for your products or services may fall, or you might be ready to retire. Whatever your circumstances, there are formal and informal procedures you can use to close your company and walk away.
If the company can afford to repay all its outstanding debts before you close it, you can use the informal Strike Off process or a formal Members’ Voluntary Liquidation (MVL). The right choice for you will depend on the value of the company’s assets.
On the other hand, your business could be struggling with unmanageable debts or a cash flow shortage and you may not see a way out. In that case, you can still close the company and walk away. You’ll need to use a Creditors’ Voluntary Liquidation (CVL) to shut it down properly and fulfil your duties as a company director.
Suggested Pages:
How do I close a business that can pay its debts?
If your company is solvent and can repay its debts before it closes, there are two methods you can use:
- Apply to strike it off the Companies Register, a process known as Strike Off or Voluntary Dissolution; or
- Enter a Members’ Voluntary Liquidation and appoint a licensed Insolvency Practitioner to close it on your behalf.
Company Strike Off
Striking your company off the register is a relatively simple and inexpensive way to close your business that you can do yourself. You can initiate the process online by completing and submitting form DS01 to Companies House and paying a small fee (currently £44).
To be eligible for Strike Off, your company must be solvent, have not traded or changed its name in the last three months, and not be part of an ongoing creditor agreement, such as a Company Voluntary Arrangement (CVA).
If you meet the relevant criteria and there are no objections to your Strike Off application, your company will be closed after around three months.
Members’ Voluntary Liquidation (MVL)
The other way to close a solvent company is via a formal process called a Members’ Voluntary Liquidation. The first step is for you and the other directors to declare the company is solvent. You can then pass a resolution to enter an MVL and appoint an Insolvency Practitioner to act as the liquidator. They will manage the process on your behalf.
One of the liquidator’s main tasks is to sell the company’s assets. They then use the proceeds to repay any parties the company owes money to (its creditors). That may include HMRC, suppliers, finance providers and customers. Finally, they’ll distribute the remaining funds among the shareholders before closing the company.
The major advantage that a Members’ Voluntary Liquidation has over Company Strike Off is that the funds can be distributed to the shareholders in a more tax-efficient way. In Strike Off, only the first £25,000 is taxed as capital. Anything over that amount is subject to Income Tax. In an MVL, all the distributions are subject to Capital Gains Tax. You may also be eligible for Business Asset Disposal Relief, which could reduce your tax liability to just 10%.
How do I close a business that can’t pay its debts?
As long as you act within the law and meet your duties as a company director, you can close and walk away from a limited company with outstanding debts.
When your company can no longer pay its bills when they become due, it is insolvent. At that point, you should stop trading and seek professional assistance. If the business is no longer viable, entering a Creditor’s Voluntary Liquidation is likely to be your best option, as it allows you to fulfil your legal duties and protect your creditors’ interests.
Creditors’ Voluntary Liquidation (CVL)
In a CVL, you must appoint a licensed Insolvency Practitioner to put the company into liquidation on your behalf. They’ll sell the company’s assets and invite its creditors to make claims for the money they are owed. They’ll use the funds from the sale of assets to repay the creditors in a strict hierarchy and any debts the company cannot pay will be written off. The liquidator will then remove the business from the register at Companies House and it will cease to exist.
As part of the process, the liquidator will investigate your role in the company’s insolvency. As long you have acted lawfully and haven’t worsened your creditors’ positions through misconduct, you should be able to walk away without adverse repercussions such as personal liability issues. You may also be eligible for director’s redundancy pay, which can cover the liquidator’s fee and provide some financial security while you consider your next steps.
I’m ready to close my business
If you are ready to retire or want to start a new company, we can help you close your business in the most appropriate way. We can guide you through the process and advise you on your eligibility for director’s redundancy pay and Business Asset Disposal Relief. Please get in touch for a free, same-day consultation or arrange a 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
