Closing Down a Limited Company–What to Expect
Updated: May 25, 2022
Closing down a limited company can happen for many reasons. Sometimes it can be a voluntary decision in order for you to retire or begin a new business venture. Sometimes it’s a scenario forced upon you—i.e., you’re grappling with insolvency. Whatever the case is, in this blog post we’ll be walking you through some ways to go about closing down a limited company and what you should expect before doing so.
Why Close Down a Limited Company?
Businesses close down all the time: it’s just a natural part of the system. It doesn’t always have to be in response to financial difficulty, but this is often the case. There are four main ways limited companies close down. These are as follows:
Members’ Voluntary Liquidation (MVL)
Creditors’ Voluntary Liquidation (CVL)
The first two options may be pursued if the limited company in question is solvent. That is—if it has no outstanding debts and its assets are worth upwards of £25k. The latter two options, on the other hand, occur when a company is insolvent.
We’re going to walk you through each one.
1. Voluntary Dissolution
If your company is all intact, you can get it ‘struck off’ the Companies Register on the conditions that:
the company hasn’t traded in the last 3 months;
hasn't changed names in the last 3 months;
isn’t threatened with liquidation;
and has no agreements with creditors—e.g., a Company Voluntary Agreement (CVA).
When you apply for Voluntary Dissolution, it’s your responsibility to wind down your business properly.
2. Members’ Voluntary Liquidation (MVL)
If your company is solvent, Members’ Voluntary Liquidation is a good avenue to pursue. It involves members of a company coordinating with an Insolvency Specialist in order to settle claims, sell assets and distribute funds to shareholders. One of the reasons an MVL is favourable is because it’s tax-efficient. Aside from various fees to play, an MVL allows you to pay capital gains tax instead of income tax on your profits.
3. Creditors’ Voluntary Liquidation (CVL)
When a limited company’s assets begin to be outweighed by its debts, the prospect of insolvency is on the horizon. In this case, Creditors’ Voluntary Liquidation is the best course of action. A CVL is still a voluntary decision, but is often a response to winding-up petitions levied on the company by its employees-come-creditors, along with anyone else the company owes money to.
An Insolvency Practitioner will be appointed whose job it is to sell the company’s assets and use the money to pay back creditors in order of priority. Once this process is wrapped up, the company will be struck off the Companies Register. A CVL can be beneficial to Directors because it offers protection from charges of wrongful or fraudulent trading.
4. Compulsory Liquidation
This is the one you want to avoid. Compulsory Liquidation begins with a winding-up petition being presented in court. In this instance, creditors would present the petition to a judge stating that the company owes a sum of money and cannot afford to pay. This is when the liquidation process begins. The company’s assets will be ‘liquidated’—i.e., turned into cash to pay its creditors—and the company is then forcibly struck off the Companies Register.
Silver Insolvency Solutions
It’s important to seek professional advice before making tough financial decisions. Stephen Silver is a licensed insolvency specialist with over 40 years experience on the job. If you or your company is grappling with unmanageable debt, a limited free consultation with Silver Insolvency Solutions could be of enormous benefit to you.