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.

More on company dissolution

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.

How 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.

1. 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.
2. During the consultation, we will advise if entering into an insolvency procedure is the most appropriate route forward, or what alternative options are available.
3. 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

Case Studies

Transcar Trading Limited

Kelly Burton • Automotive • Pre-Pack Administration

Advisors from Yorkshire’s Wilson Field have saved 12 jobs at a Darlington low load haulier after it was bought out of administration.

Transcar Trading Limited specialised in collecting and delivering motor vehicles nationwide with its main clientele including major car dealers Bristol Street Motors, Lookers and Knaresborough Vauxhall.

The company, which traded from rental premises at Lingfield House Darlington and Macklin Avenue, Billingham, called in administrators from Sheffield-headquartered Wilson Field to look into the ongoing viability of the company and advise on a turnaround strategy.

After set up in 2015, it had experienced rapid growth within the last 12 months of trading and, coupled with a number of uncollected and disputed invoices, had created cash flow pressures and a build-up of arrears to HMRC.

Kelly Burton and Lisa Hogg from Wilson Field were appointed as joint administrators on November 27 and concluded a pre-packaged sale of the business and assets to Transcar Logistics Limited – wholly owned and managed by one of the directors and shareholders of Transcar Trading.

Kelly Burton, director and licenced insolvency practitioner at Wilson Field, said:

“As a result of the pre-packaged sale of the company’s business and assets to Transcar Logistics, 12 of the company’s 18 employees were transferred under TUPE, minimising preferential claims in wage arrears and accrued holiday pay.”

Valuations and advice on asset disposal was handled by Robert McArdle of David Currie & Co with legal services and advice from solicitors Ward Hadaway.

Scottish Pub Chain

Kelly Burton • Leisure & Hospitality • Pre-Pack Administration

The director initially approached Wilson Field for assistance with the drafting of a Company Voluntary Arrangement (CVA), following HMRCs refusal to allow the company a time to pay agreement. Wilson Field drafted a CVA proposal, which was rejected by HMRC, who then issued a winding-up petition.

Wilson Field then advised the director to his remaining options, of which placing the company into Administration was one.

Due to the petition, the director was unable to appoint administrators. However, following protracted discussions with the company’s debenture holder, it was agreed that the secured creditor would appoint Wilson Field, at the request of the director.

Insolvency practitioner and director at Wilson Field, Kelly Burton, said:

“After being refused a CVA by HMRC, the company received a winding-up petition and we were appointed Administrators after speaking with the debenture holder.

Although it was a tricky start, there was a good outcome as the assets and business were sold and 75 employees kept their jobs.”

A licence to occupy was granted to an associated company to trade the pubs, whilst a sale could be finalised post appointment.

The sale was completed to an associated party a number of months after appointment, and secured over 75 jobs.

M J Squire Limited

Kelly Burton • Construction & Engineering • Creditors Voluntary Liquidation (CVL)

A bespoke joiners and shop fitters in Sheffield, M J Squire Limited, had been in its trade for more than 30 years.

However, recently it has been forced to close due to the downturn in the construction and retail industry.

The company was located at Orgeave Close in Sheffield, after working for many household names over the years including House of Fraser, Levi’s, Austin Reed and Tommy Hilfiger.

Until 2014, it had been a profitable company but over the past couple of years, it had been unable to secure profitable contracts.

February 10^th, 2016 saw the appointment of Wilson Field’s Andy Wood and Robert Dymond as liquidators. This development for the company came as a result of suffering cash flow problems.

Operations at M J Squire Limited have now ceased and regrettably, all nine roles within the company were made redundant.

Andy Wood, insolvency practitioner from Wilson Field, spoke about his work on this case. 

“Declining sales at M J Squires significantly impacted cash flow and the business’ ability to meet its liabilities. In the face of tough market conditions, the director has taken the difficult decision not to continue trading. The business has closed and the assets are being sold.”

“It is very sad to see this well-known local business cease to trade after over 30 years. The downturn in the retail sector has hit this business hard.”

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