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
Designer Recliners Limited
Kelly Burton • Manufacturing • Administration, Company Voluntary Arrangement (CVA)
A Sheffield furniture manufacturer and upholster has relaunched offering a smaller, more specialised range of products.
Anico Interiors Limited, which included reclining chairs for the elderly, had suffered cash flow problems and issues with profitability.
Designer Recliners Limited, managed by director Nick Wall, has purchased the assets and business of Anico saving all 11 jobs.
Andy Wood and Robert Dymond from Sheffield business turnaround experts Wilson Field were appointed joint liquidators on 8 June and advised on the sale of the 14-year-old company, based on Orgreave Crescent at Orgreave Industrial Estate, as a going concern.
Andy Wood, associate director and insolvency practitioner at Wilson Field said:
“Historically, the company offered a wide range of products but has now streamlined its offer to customers and cut out some unprofitable lines, as well as re-vamped its web site.
“Directors took advice from Wilson Field with the business sold to new company Designer Recliners Limited as a going concern, safeguarding all 11 employees’ jobs. The new company will offer the same service and standards under the same management team but focus on a smaller range of specialised products.”
The company employs skilled staff including upholsterers, seamstresses and cutters and was set up in 2002 by Nick Wall.
Mercer Group
Kelly Burton • Construction & Engineering • Pre-Pack Administration
All 38 jobs have been saved at a Bolton construction trade company after administrators at Wilson Field sold the company in a pre-pack deal to existing management.
Joint administrators Kelly Burton and Lisa Hogg from Wilson Field were called in by directors of Mercer Group on 7 July 2017.
The company, based at Turton House on Wellington Road in Bolton, had suffered due to serious underpayments from clients resulting in VAT and PAYE arrears and issues with HMRC.
Mercer Projects Ltd bought the company for an undisclosed sum with all 38 staff from across the group being transferred to the new company under TUPE.
As well as saving jobs, estimated redundancy and holiday pay totaling almost £97,000 were mitigated resulting in 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 Mercer Projects has resulted in all 38 jobs being secured and that the business will continue to trade.
“We determined that a pre-packaged sale would be in the best interests of creditors.”
Director Alison Mercer said;
“This has been an uncertain and very difficult period for Mercer Group but advice from the administrators at Wilson Field has made the whole process less stressful. Their communication and procedure and working closely with them has meant we have been able to keep all 38 staff.
“With our strong reputation within the sector as a multi trade company and with the same staff team, we were confident that the company has a viable future.”
Alison added;
“It is very frustrating when events which are outside of your control threaten the very existence of your business and the jobs of a loyal workforce. Working with our advisors and staff, the future of Mercer Projects now looks very positive and we are in a position to offer our customers the same high quality of products and service.”
The companies began as Mercer Brothers Limited in 2004 and D Mercer and Sons Ltd in 2009 as plastering only businesses and quickly evolved through training and business expansion into a multi-trade company, to become known as Mercer Group.
During a period of quadruple growth between 2012 and 2013, the company relocated its offices to Bolton and undertook work in both the public and private sectors including residential, educational, medical and commercial properties.
Areas of expertise included demolition, plastering, screeding, tiling, flooring, joinery, painting and decorating, structural and ground works and roofing.
It also worked in partnership with a number of local colleges and schools to provide apprenticeship schemes for 16-24 year olds to gain experience, skills and qualifications in the construction industry. Mercer Projects has continued to provide apprenticeships and currently has 4 apprentices who are working on our construction sites.
Gosschalks Solicitors of Hull advised and dealt with legal work with asset sales through Ian Maycock of Charterfields Surveyors in Manchester.
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.
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