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

Consortia Service Group

Kelly Burton • Service Agency • Pre-Pack Administration

A Cardiff security specialist has been bought out of administration saving all 44 jobs.

Zenith Security Specialists Limited was set up in 2009 providing manned CCTV security systems to national and private firms, local authorities and small businesses.

Trading as Consortia Service Group, the company was based at Cardiff Bay Business Centre and was taken over in January 2015 by director Ozma Nasir with a view to expanding the business.

Administrators Kelly Burton and Joanne Wright from Sheffield business turnaround experts Wilson Field were appointed joint administrators on 17 May after the company faced mounting pressure from HMRC in respect of PAYE and VAT arrears.

Miss Masir took advice from Wilson Field and the business was sold in a pre-pack administration to Consortia Services Group Limited as a going concern saving all 44 employees’ jobs.

Kelly Burton from Wilson Field said:

“Unfortunately, a number of the inherited on-going contracts were unprofitable. Despite attempts, the company did not have sufficient time to turnaround the business and was struggling to service both its on-going overheads and significant HMRC liabilities.

“Attempts were made to source further additional funding proved impossible and so the decision was taken to enter administration.

“Following discussions with the director, the business was sold as a going concern, safeguarding all 44 employees’ jobs and offering a better return for the company’s creditors than alternative options.

“The new company will be under the same management offering the same standards of service to its customers.”

Rooster Punk Ltd

Kelly Burton • Media & Entertainment • Pre-Pack Administration

Advisors from Wilson Field have rescued a London headquartered advertising agency after it was bought out of administration by the existing management team.

Rooster Punk Ltd was established in 2012 and specialised in providing creative content for technology and financial services brands to better interact with clients and customers.

The company, which traded from head offices at Queen Victoria Street in London with a second office in Clifton Down Road in Bristol, called in administrators from Sheffield-headquartered Wilson Field for formal insolvency advice.

The company had experienced significant growth since set up and posted profits each year up to and including October 2016.

However loss of funds due to a bad debt combined with the termination of customer contracts and rising business overheads had created cash flow problems.

Kelly Burton (pictured) and Lisa Hogg from Wilson Field were appointed as joint administrators on December 6 and concluded a pre-packaged sale of the business and assets to Rooster Punk Group Limited lead by the same management team of Rooster Punk Ltd.

All remaining nine staff at the time of the sale were saved and transferred to the new company under TUPE.

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

“Wilson Field considered the company’s precarious financial situation, which was borne as a result of a number of factors including the Samsung contract under billing, loss of funds due to a bad debt from a start-up, termination of customer contracts and rising business overheads.

“Despite attempts to cut back overheads, including reducing staff numbers from a peak of 24 down to 10, the directors recognised the company’s precarious position and sought formal insolvency advice from Wilson Field, and advice on alternative options available.

“The pre-packaged sale has mitigated employee termination claims in the nature of wage arrears, accrued holiday pay, redundancy and pay-in-lieu of notice totalling £33,680.

“It has preserved the value in the company’s intangible assets, namely its goodwill and work in progress and maximised the value of the company’s trade debtors due to the continuity of service to the company’s customers by the successor business.”

Valuations were handled by Robert McArdle of David Currie & Co with legal services and advice from solicitors Irwin Mitchell LLP.

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.”

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