Closing a company might seem like a last resort for any director. However, depending on your company’s circumstances, it could be the most suitable option. This could include where recovery and restructuring attempts have failed, or when the company is struggling with unmanageable levels of creditor pressure. Alternatively, it could stem from a desire to close it for other reasons outside of insolvency.
How your company’s solvent status can affect your options
If you wish to close your company, its solvent status will affect the type of liquidation it can enter.
As the company’s director, you should always be aware of your company’s solvent position and take necessary action as soon as you become aware of any of the following warning signs:
- The company cannot repay its liabilities as and when they fall due.
- The company’s liabilities exceed the value of its assets.
- The company has legal action from creditors, or other attempts have been made to recover the owed amount. While not a definite sign of insolvency, it can indicate financial issues which could lead to it.
Regardless of your situation, if you’re considering closing your company, you should speak to a licensed and regulated insolvency practitioner. They will assess your company’s situation and can offer free, impartial, confidential advice, and potentially a no-obligation quote.
Closing an insolvent company
If your company is insolvent, and previous attempts at recovery or restructuring haven’t been successful, then closing the company through an insolvent Creditors Voluntary Liquidation (CVL) might be your best option. The process formally closes the insolvent company, reducing the risks of legal action and wrongful trading accusations and allowing you to move on and start afresh.
Closing a solvent company
Even if a company is solvent, you might want to close it in the following situations:
- There’s been a significant change in the industry, meaning your company may not be viable in the future.
- You want to change to a different industry or seek employment in another company.
- The company has reached the end of its useful life.
- A change in your personal circumstances, i.e., wanting to retire without selling the company or a line of succession.
- The company has stopped trading but hasn’t been registered as dormant at Companies House.
You may be able to dissolve the company if the company is solvent and has a small number of assets. Before proceeding with a dissolution, however, it’s important to make sure the company:
- Has no outstanding legal action against it.
- Hasn’t traded for at least three months.
- Has enough to settle all employment liabilities, including:
- PAYE & National Insurance Contributions.
- Outstanding wages, holiday, and redundancy pay.
- Has completed and filed all statutory returns to HMRC and Companies House.
- Has closed its bank accounts
If the above are true, and the company’s assets, including cash at the bank, exceed £25k, then it might be eligible for a solvent Members Voluntary Liquidation (MVL). This can be more efficient than a dissolution and provide additional tax benefits to directors and shareholders.
Summary
Closing a company might feel like the last thing you want to do as its director, but it can be the best way forward in some situations. These situations can include if the company is insolvent and without much prospect of recovery, if you wish to close it due to a change in the market or your professional circumstances, or if you don’t want to run the company anymore. The company’s solvent position will have a bearing on how it will close. Solvent companies can close through dissolution or a solvent liquidation, while insolvent companies will have to close through an insolvent liquidation. If you’re unsure of the best way forward for your company, speak to a licensed and regulated insolvency practitioner who can assess your situation and advise you on the best way forward for the company.
