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
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 10th, 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.”
ARB (Sound Vision Light Power) Limited
Kelly Burton • Leisure & Hospitality • Administration
Wilson Field has secured a new future for a Banbury headquartered events management company, which boasted clients including Crufts, Tour of Britain and Virgin London Marathon after it was bought out of administration.
ARB (Sound Vision Light Power) Limited was established in September 2014 and specialised in event hire including providing audio visual solutions equipment, hire and installation.
The company, which traded from Coton Cottage, Chacombe near Banbury, called in administrators from Sheffield-headquartered Wilson Field for formal insolvency advice.
The company, which has an impressive client list and relied solely on sub-contractors as and when needed, suffered VAT and HMRC issues as a result of a period of illness.
Kelly Burton and Lisa Hogg from Wilson Field were appointed as joint administrators on February 20 and concluded a pre-packaged sale of the business and assets for an undisclosed sum to ARB Motors Limited, lead by the same management team.
Kelly Burton, director and licensed insolvency practitioner at Wilson Field said:
Wilson Field was brought in to look at the situation of the business.
The focus on the company had diluted during a period of illness of one of the two directors. A debt was due to HMRC and a repayment proposal was rejected resulting in the need to protect the business and assets via a formal insolvency procedure.
The pre-packaged sale means the business, which was an established player in event management at large scale events, has a bright future moving forward.
The loss of a major employee’s input through illness can harm an organisation and it is important for businesses to seek help should this arise. Timing is essential to keep focus on the business.
ARB has combined experience of more than 100 years and provided hire equipment such as indoor and outdoor PA systems, single and double-decker commentary units, street sound vehicles, exhibition TVs, stage lighting and mobile power in both primary and secondary distribution.
L’Etranger
Kelly Burton • Leisure & Hospitality • Pre-Pack Administration
Administrators from Wilson Field have worked with bosses at a London restaurant to serve up a rescue deal. Kelly Burton and Lisa Hogg were appointed joint administrators on 10 July to South Kensington based L’Etranger Restaurant.
Established in 2002, the Gloucester Road restaurant, located near the Royal Albert Hall and London’s Museum Quarter including the Victoria and Albert Museum, the Natural History Museum and Science Museum, had been trading as L’Etranger Restaurant since 2010 benefitting from the prime location for visitors and theatre-goers.
However the company sustained a significant loss following the sale of a second restaurant in 2014 and experienced mounting cash flow issues with its retained premises resulting in HMRC arrears and the threat of a winding up petition.
Keane Hart Ltd, a company owned and managed by existing management team lead by director Ibi Issolah, has acquired the business out of administration for an undisclosed sum.
Kelly Burton, director and licenced insolvency practitioner at Wilson Field, said;
“L’Etranger had suffered losses in the past few years due to the previous loss-making sale of a second premises. Funds were spent on L’Etranger which absorbed further cash flow accruing HMRC arrears and the company being threatened with a winding up petition.
“The restructuring process has resulted in the continuation of a viable restaurant and the safeguarding of all the employees and ensures that the business is financially secure for future trading.
“Five jobs have been saved and transferred under TUPE to the new company.”
L’Etranger serves Japanese-influenced French cuisine, as well as maki and sashimi alongside offering a world-class wine selection. It has been awarded a number of accolades including an AA Rosette for Best Wine List in the UK 2013.
As well as seating 80 diners in the restaurant, L’Etranger offers wine tasting, private dining and events for up to 100 people on its premises.
Shulmans in Leeds advised and dealt with legal matters with Robert McArdle of David Currie & Co in Manchester assisting with asset valuation and disposal.
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