How to Close a Solvent Limited Company

If a company has the money to pay its bills then it is solvent.

Solvent companies are relatively easy to close. The cheapest way is to get a company struck off the Register of Companies, but you can only do this if the company hasn’t traded or changed its name in the last three months.

If a company doesn’t meet these conditions, then you may need to pursue a Members’ Voluntary Liquidation (MVL).

If you are planning to close down your solvent limited company then depending upon how much cash there is left, using an MVL could be the most tax-efficient way and save you thousands of pounds.

How to Close an Insolvent Limited Company

If a company can’t afford to pay all of its bills when they fall due, then it is ‘cash flow’ insolvent. If all the directors agree and you want to close an insolvent company, the process can be a little trickier.

When a company is insolvent, the interests of a company’s creditors (the people your company owes money to) legally come before the interest of the company’s directors or shareholders.

You must get the agreement of three quarters of a company’s shareholders and use the creditors’ voluntary liquidation process.

After getting agreement from the shareholders, the next step is to appoint an authorised Insolvency Practitioner as Liquidator.

The Liquidator will take control of the business and is legally obliged to act in the interests of a company’s creditors, rather than its directors.

The Liquidator will perform a number of duties, including:

• Settling legal disputes and outstanding contracts
• Speaking to creditors and selling off company assets to pay them back
• Filing necessary paperwork
• Paying liquidation costs
• Interviewing directors to report on what went wrong in the business

The Insolvency Practitioner will act as the company’s Liquidator and will be in charge of distributing the remaining assets to creditors.

Administration

There is another option for insolvent companies called Administration. You can instruct an insolvency practitioner to look to restructure a business through an Administration to enable it to carry on trading.

During an Administration, the insolvent company will be protected from all creditor action winding up petitions while the Administrator works out the best course of action. The Administrator may believe that the only choice is to sell assets to pay creditors and then close the company.

Compulsory Liquidation

If you don’t pay creditors, your company may be forced into Compulsory Liquidation. Creditors can apply to a court for a ‘winding up’ petition if you owe them £750 or more. The directors can also apply to a court for Compulsory Liquidation.

If successful, the court will appoint a Liquidator known as the Official Receiver to sell company assets, pay company creditors and deal with the affairs of the company before closing it. They will also investigate your conduct as a director, which could lead to disqualification.

Company Voluntary Arrangement

If your company is insolvent, but you don’t want to liquidate and close it, then you may be able to use a Company Voluntary Arrangement. This is an agreement between your company and its creditors to pay back what you can owe over a set period.

If creditors agree to the arrangement, you may be able to continue trading. If you are a sole-trader or self-employed, then you should pursue an individual insolvency solution like an Individual Voluntary Arrangement (IVA).

For help and advice with closing down a limited company, speak to a professional Insolvency Practitioner today. Call Umbrella Insolvency: 0800 611 8888.