There are many aspects to consider before you decide to close your limited company. Some of these may seem obvious, while others can be overlooked in a process that can be confusing, and easy to miss if you’re not used to filtering.
This can be especially true if your company is insolvent and under pressure from its creditors.
Here are some scenarios in which you may have to or want to close your company and some basic steps to take while doing so.
When might you want to liquidate your company?
A company does not need to be insolvent to enter into liquidation. You may want to liquidate a solvent company for any of the following reasons:
- Market changes that affect the continuity of your company in the future.
- The company has reached the end of its useful life or achieved its purpose.
- You are retiring as a director without a successor, and you do not want to sell the company.
- The company is insolvent and cannot pay its obligations when they fall due, and pressure from creditors makes trading impossible.
Before you decide how you want to close your company, consider its situation, including the following circumstances:
- Is your company solvent or insolvent?
Your company is considered solvent if it has no outstanding liabilities and can pay its bills when they are due. If this applies to your company and you wish to close it down, you can do so by dissolution, or Members’ Voluntary Liquidation (MVL) if the company has sufficient assets.
If the company is insolvent, you should obtain advice from a licensed and regulated insolvency practitioner as soon as possible. These highly experienced professionals can help guide you to the best solution for your company.
What are your company’s tax obligations?
Any amounts owed to Revenue and Customs (HMRC) must be settled before liquidation. The company’s final accounts must also be settled. If the company She can’t pay her bills to HMRCThey will likely come after you because of what you owe. Do not ignore this recovery procedure.
Have the company’s leasing agreements been settled?
Review the terms of any leases for machinery, property or company vehicles. You must ensure that these conditions are met before liquidating your company. Contact your lease provider and discuss your position and intentions with the company before liquidating.
What are your employees’ rights, including redundancy?
Consider your employees when it comes time to liquidate your company. The prospect of being made redundant can be an upsetting and uncertain time, and when dealing with it, you need to be sensitive to their situation. Make sure you give adequate notice and make them aware of what they are entitled to.
Does the company have an unpaid manager loan account or bounced loan?
Any outstanding manager loan account should be addressed prior to liquidation. If you leave these matters pending, they could make you personally liable for the company’s debts.
Likewise, if your company takes out a bounceback loan during the COVID outbreak and the company still has not paid the amount owed upon liquidation, the loan will become an unsecured debt. They don’t come with personal guarantees, but if you misuse the bounce back loan, you could still be personally liable for the amount owed.
If you have any of these matters outstanding, speak to a licensed and regulated insolvency practitioner before you attempt to close the company.
What to do next
If you have taken all of the above into consideration, you should know whether your company is financially solvent or insolvent, which will help you decide your next course of action.
Solvent filtering
If your company is solvent and has sufficient assets to justify solvent liquidation, you may explore a Voluntary liquidation of members (MFL). Closing the company in this way, rather than dissolving it, means you can benefit from Business Asset Disposal Relief (BADR).
Insolvent liquidation
An insolvent company that cannot recover from its burdensome debts must close its doors through creditors’ voluntary liquidation (CVL). This process closes the insolvent company and draws a line under the debt.
Both types of liquidation must be carried out by a licensed and regulated insolvency practitioner.
To summarize
Closing your limited company is a multi-faceted process and requires careful consideration of various legal, financial and operational factors. Whether your company is solvent or insolvent, it has obligations to creditors, tax authorities, employees and rental providers, and it is essential that you understand these obligations to ensure the process runs as smoothly as possible while you carry out your duties as a director.
Speak to a licensed and regulated insolvency practitioner for tailored advice on the most appropriate path for your company.
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