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

K2 Technologies Ltd and K2 Thermal Imaging Ltd

Kelly Burton • Service Agency • Administration

Wilson Field has helped secure the sale of two related North East businesses, which developed and manufactured thermal imaging equipment, as a going concern to Cenergem Limited backed by a group of local investors not associated with the current management.

Kelly Burton and Joanne Wright from Sheffield-based insolvency specialists Wilson Field were appointed joint administrators of Darlington-based K2 Technologies Ltd and K2 Thermal Imaging Ltd on 25 July 2016.

The two companies had experienced cash flow problems following to a sharp decline in the demand for their products due to increased global competition in the market over the last 18 months.

The sale, which resulted in six of the current eight jobs being saved, was achieved by Wilson Field, working alongside valuers and asset management consultants Charterfields, who handled a number of inquiries and Mark Wilkinson, insolvency partner at Shulmans Solicitors in Leeds.

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

“During the past 12 to 18 months K2 had begun to experience increased competition in the market. Competitors had started to manufacture and sell similar products at a lower price, meaning the company had seen a sharp decline in the demand of products and a resultant shortage of cash flow.

“Our job was to realise a sale of K2 as a going concern to achieve the best return for the company’s creditors. There was significant interest by a number of parties. The resultant sale has also saved six of the eight jobs.”

K2 Thermal Imaging Ltd and its predecessors were involved in the development of three products establishing the company as a lead pioneer in thermal imaging.

The company designed and engineered three main product ranges for extensive use in the marine, firefighting and industrial sectors, allowing operators to enter smoke-filled environments to detect and rescue people with a hands-free application, therefore improving success rates in recovery.

Karmik Limited

Kelly Burton • Manufacturing • Pre-Pack Administration

A well-known Bradford designer and manufacturer of bespoke kitchens for commercial and residential customers have been bought out of administration saving all 36 jobs.

Karmik Limited, trading as Designer Factory Kitchens, has been acquired by Karmik UK and will be operated by the existing management team.

Joint administrators Kelly Burton and Lisa Hogg of insolvency and business turnaround specialist Wilson Field were appointed to Karmik on 13 March.

The company, which was incorporated in 2013, had suffered two bad debts in 2016 totaling almost £100k causing severe cash flow problems and HMRC arrears.

The total value of the pre-pack deal is undisclosed but it includes the business and the assets of the company based at Fairfax House in Drighlington.

Kelly Burton, director and insolvency practitioner at Wilson Field in Leeds, said;

“DFK celebrated its 25th anniversary recently but as a result of suffering two significant bad debts found itself facing a cash flow crisis.

“After attempting without success to raise further finance, the directors sought advice and as a result of taking prompt action we have been able to save the DFK brand and all 36 employees’ jobs. As the jobs were transferred to Karmik UK, this alone saved over £44,000 in redundancy and wages claims.”

Managing director Mike Baziw commented;

“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 DFK now looks very positive and we are in a position to offer our customers the same high quality of products and service.”

Direct Entry Solutions

Kelly Burton • Transport & Logistics • Pre-Pack Administration

A Middlesex postal service company, whose facilities could handle around 30 tonnes of post a day, has been bought out of administration saving all 25 jobs.

The 13-year-old business, which initially traded as a consultancy service supplying postal services to UK-based wholesale mail companies, has been acquired by an associated company Direct Entry Solutions Worldwide Ltd and will be operated by the existing management team.

Joint administrators Kelly Burton and Lisa Hogg of insolvency and business turnaround specialist Wilson Field were appointed to Direct Entry Solutions on 25 January.

The company had experienced a difficult trading period after diversifying from its core offering to incorporate the physical sorting of post along with returned mail management and various other mail processing services. This resulted in possible enforcement action by creditors including HMRC and the Austrian postal company Osterreichische Post.

The total value of the pre-pack administration deal is undisclosed but it includes the business and the assets of the company based on Stockley Close in West Drayton.

Kelly Burton, director and insolvency practitioner at Wilson Field in Leeds, said;

“The consequences of switching from a consultancy to processing mail involved significant investment and consequential increased ongoing costs.

“The company required a large boost in the staffing levels, a bigger premises in a more suitable location, relevant machinery and equipment for the warehouse operatives, in addition to large injections of cash.

“A number of onerous contracts also caused a pressure on cash flow and a build-up of historical debt.

“Our actions have secured all 25 jobs and brought about a better return to creditors. As the jobs were transferred to Direct Entry Solutions Worldwide, this alone saved over £27,000 in redundancy and wages.

“From what was a difficult situation has emerged a better result for creditors and staff.”

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