How to close a limited company help & advice
Closing a limited company can be a complicated process with numerous ways to go about it depending on the company’s solvent position. Before taking action, you need to know whether the limited company is solvent or insolvent. Knowing this determines what action can be taken when deciding to close a limited company.
Closing a solvent company
If you are looking to close a limited company and it’s solvent, there are two options available depending on the value of the company’s assets. For this purpose, solvency is defined as being able to repay all existing and prospective debts when they fall due.
Members Voluntary Liquidation (MVL)
If the company can realise sufficient value from the sale of its assets to repay creditors in full and leave at least £25,000 left over for distribution to shareholders, then directors can apply for a Members Voluntary Liquidation (MVL).
- The company’s assets are sold or realised, with the proceeds used to pay creditors in full.
- Often a cost-effective and tax-efficient way of closing a limited company.
- Allows shareholders to take advantage of Business Asset Disposal Relief (Entrepreneurs’ Relief).
Once the limited company is closed down, the remaining cash would then be distributed to shareholders, and the company would be removed from the register at Companies House.
More on Members Voluntary Liquidation
Dissolving a limited company
If at least £25,000 cannot be realised from the sale of company assets, an MVL may not be the most cost-effective way of closing down a limited company. In which case, dissolving the limited company, or ‘striking off’, may be more appropriate and cost-effective.
- A dissolution would involve the company being removed from the company register at Companies House and ceasing to exist.
- There are specific criteria that a company needs to adhere to in order for it to be successfully dissolved.
- The company cannot have traded for three months prior to the dissolution.
It is a common misconception that a director can’t close a company via dissolution if it owes anything to creditors. However, directors can apply to have the company dissolved in such circumstances. Directors are required to inform all creditors and other interested parties of the striking off and make them aware that they have three months in which to contest it.
Closing an insolvent company
Closing a limited company is still possible regardless of whether that company is solvent, however, the processes available differ. A company is usually deemed to be insolvent if it can no longer meet its day-to-day obligations or if its liabilities outweigh its assets on the balance sheet.
In this instance, the following methods to close down a company are available:
Creditors Voluntary Liquidation (CVL)
A Creditors Voluntary Liquidation (CVL) is a formal liquidation procedure for companies that are insolvent and can no longer continue trading.
- A CVL involves closing a limited company through the realisation of its assets in order to make repayments to creditors on a pro-rata basis.
- A director may not want to close the company, but there simply isn’t enough cash to pay creditors back, which means the business has no viable future in its current form.
More on Creditors Voluntary Liquidation
Restart your business in a new limited company
In some circumstances, directors can restart the same business using a new limited company and a different trading name. In special instances, a limited company can use a similar trading name as its predecessor.
In some cases, an insolvent company can sell its assets and restart trading in the name of a new limited company, a procedure known as a pre-pack sale.
- Pre-pack can be achieved either through administration or liquidation.
- They work slightly differently, but both close a limited company, with another restarting in the ashes of the old company, which is known as a phoenix company.
A pre-pack liquidation will see the old company, ‘oldco’, liquidated and closed. During that process, the directors have the option to purchase assets from the oldco at full market value and transfer them into the new company, ‘newco’.
Pre-pack administration works slightly differently. It is a much faster process, whereby the wholesale of a company will be already organised. The remaining staff, assets, work in progress, and certain aspects of the company are then simply transferred over to the new directors.
More on closing and restarting a limited companyHow we can help
If you are looking to close your company, we can help guide you through the potential insolvency procedures. Whether solvent or insolvent, we can advise you on the best route forward and close down your limited company. We offer a fast and efficient service with nationwide coverage, meaning a free consultation can be arranged at a time to suit you.
- Speak with our initial advisers via phone or online chat. If we can help, we will arrange a free consultation with one of our consultants to discuss your situation in more depth.
- During the consultation, we will advise if entering into an insolvency procedure is the most appropriate route forward, or what alternative options are available.
- After your consultation, if there is an appropriate route forward, we will issue the relevant documentation for you to formally engage us.
In summary
The process to close a limited company depends on whether the company is solvent or insolvent. If you need to close an insolvent company, you may have no choice but to liquidate, which you can do so voluntarily, or it could be forced upon you. If you believe that the company could continue trading, but could only do so without creditor pressure, then there are different rescue methods that could work. Even when undergoing a liquidation, there are ways to move your company forward.
FAQs
Can a limited company go bankrupt?
In the UK, bankruptcy only applies to individuals, and companies cannot enter bankruptcy like their US counterparts. Liquidation is the equivalent process for UK-based insolvent companies.
More help for insolvent companies
Can creditors force a company to close down?
If a company owes a creditor more than a certain amount of money, that creditor can apply for a winding-up petition. If the directors don’t act quickly, the petition can force the company into compulsory liquidation.
More on compulsory liquidation
How much does it cost to close a limited company?
Depending on the nature and complexity of the business and its solvent state, the cost to close a limited company may vary. For solvent companies, our standard MVL cost is £1,995 + VAT and expenses. The cost to liquidate an insolvent company can vary depending on its circumstances.
More on the costs to liquidate a limited company
Case Studies
Aristocrat Pet Supplies
Kelly Burton • Retail • Administration
The business and assets belonging to a Sheffield online pet supplies company are up for sale. Aristocrat Pet Supplies, a family owned and run business, milled its own feed and seed on-site in Sheffield and has been trading for over 25 years selling agricultural raw materials, livestock, textile raw materials and semi-finished goods.
Sheffield-based insolvency specialists Wilson Field were called into the firm after it experienced increasing pressure and competition online. Andy Wood and Lisa Hogg were appointed as joint administrators for the company on January 26.
Wilson Field is trading the business in the short term with a view to finding a potential buyer for the company based on Holbrook Green Industrial Estate near Sheffield.
Andy Wood, associate director and insolvency practitioner at Wilson Field said:
“The business has encountered increased competition in recent years, principally from discount stores which have reduced margins.
“It has been on the market for several months but has not attracted any significant interest so far. As administrators, Wilson Field is trading the business in the short term to maximise realisations on a reduced staff base of seven.”
Aristocrat, which employed 19 staff, offered a range of pet supplies including dog and cat treats, chews, small animal bedding, wild bird supplies, poultry and aquatic food.
Statestrong Limited
Kelly Burton • Manufacturing • Administration, Creditors Voluntary Liquidation (CVL)
Insolvency experts Wilson Field has helped turnaround the fortunes of a loss-making manufacturing company in Lancashire providing a new future for its 80 employees.
Businessman Russell Blaikie acquired the struggling 40-year-old Statestrong Limited, headquartered in Lytham St Annes, through a pre-pack sale and has been able to help the company immediately utilising his expertise in manufacturing and management.
Arrangements for the purchase of Statestrong’s business and assets were negotiated by Sheffield business specialists Wilson Field who affected the sale shortly after being appointed.
The company, which manufactures and supplies aerosol and liquid products for use in health and beauty, household, automotive and industry globally, posted sales of £12m last financial year, but had suffered pressure from creditors with outstanding arrears.
The total value of the deal is undisclosed but includes the business and the assets of the company based on Boundary Road in Lytham St Annes and Tarporley in Cheshire, which will now trade as Statestrong Products Limited.
Mr Blaikie said:
“Transactions of this nature are sensitive and require careful handling. The team at Wilson Field provided exactly the right professional approach.”
Wilson Field’s insolvency practitioners Kelly Burton and Joanne Wright worked closely with Mr Blaikie along with senior corporate case administrator Gareth Kinneavy.
Kelly Burton, said:
“The company had a wealth of expertise but was straddled with financial liabilities which ultimately made its future questionable. Looking forward, a previously distressed business now has a viable future.”
Bay Cleaning Solutions
Kelly Burton • Other • Pre-Pack Administration
Administrators from Wilson Field have helped safeguard all 245 part time jobs at a Welsh commercial cleaning company after it was sold in a pre-pack deal to existing management.
Joint administrators Kelly Burton and Lisa Hogg from Yorkshire-based Wilson Field were called in by directors of Swansea-based Bay Cleaning Solutions on 19 October 2017.
The company, based at Walter Road in Swansea, had seen significant growth over the last two years but increased direct costs and administrative expenses had rendered the company loss-making.
Cash flow problems had resulted in the accumulation of substantial tax arrears and other debt and despite attempts to seek increased borrowing and arrange a payment plan with HMRC, the company was placed into administration.
MRB Cleaning Limited bought the company with all 245 part-time staff being transferred to the new company under TUPE.
In saving all the jobs, Wilson Field mitigated employee termination claims in the nature of wage arrears, accrued holiday pay, redundancy and pay-in-lieu of notice which equates to almost £137,500, offering a better return to creditors.
Kelly Burton, director and insolvency practitioner at Wilson Field, said:
“We are pleased that the sale of the company to MRB has resulted in all 245 jobs being secured and that the business will continue to trade. This is a substantial number of jobs saved. We determined that a pre-packaged sale would be in the best interests of creditors.”
BCS has over three decades of experience in the field of commercial cleaning with its core business relying on high footfall premises such as pubs, clubs and restaurants.
It also worked in areas including commercial cleaning, specialist cleaning, building maintenance, student accommodation, end of tenancy, hard floor and domestic cleaning.
Robert McArdle of David Currie & Co of Manchester dealt with asset disposal while Shulmans Solicitors of Leeds handled the legals.
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