A director can close and liquidate a company with debts and start a new company. Their options include:

• Pre-pack administration.
• Pre-pack liquidation.

Should a director close and liquidate a company with debts, it typically has no legal bearing on setting up a new company. However, if a director is found guilty of fraudulent or wrongful trading, they may be disqualified and therefore unable to set up a new company.

There are also restrictions around the reuse of the insolvent company’s name in any subsequently formed companies.

Liquidate a company with debts and start again through Pre-Pack Liquidation

To start a pre-pack liquidation process, a company must be considered insolvent and under threat from pursuing creditors. The process will see the company liquidated through Creditors’ Voluntary Liquidation (CVL), with a pre-arranged sale of assets to the company director. The director is then able to start a new company, using the previous company’s assets and can begin trading, free of the old company’s debts.  

Pre-arranged sale of company assets through Pre-Pack Administration 

A pre-pack administration is a procedure available to some insolvent companies if it’s deemed to be in the best interest of creditors. It involves the pre-arranged sale of all or some of the assets from the insolvent company. They are bought by the same director and put into a new company. The initial company then follows through with the remainder of the administration process as to extract maximum value for creditors, whilst the newly created company is free to start trading. 

The newly-formed company, created for the purpose of continuing the business of a closed, insolvent one is sometimes called a ‘phoenix company‘.

Restrictions on restarting a company

To avoid directors building up debt with a company and then simply putting it through liquidation to restart a new company, there are several restrictions in place which must be met first to avoid directors closing a company without facing the consequences.

• Reusing the company name
  A newly created ‘Phoenix company’ cannot use the same trading name as its predecessor. There are certain times when this can be done. However, it must fall under the legal requirements of Section 216 of the Insolvency Act 1986.
• HMRC security deposit
  If HMRC believes there’s a risk your company may fail to pay its taxes, they may first require a security deposit.
• Goods and Assets
  Any goods and assets which are bought from the insolvent company in the process of starting a new ‘Phoenix company’ must be purchased at market value.
• Transferring employees
  Employees are allowed to transfer to the new ‘Phoenix company’ and may even negotiate new contract terms, working hours and benefits but advice should be considered for a potential continuation of employment liabilities that would fall on the new company.

How we can help

If your company has debts, it’s vital to act quickly. We are licensed insolvency practitioners who can assess your situation and put your company into liquidation before advising on the best way to restart a new company.

1. Speak with our initial advisers through phone or online chat.
2. After the initial assessment, we will identify if your company is viable for liquidation.
3. We will propose the liquidation of your company and undertake the necessary steps.

All advice is free of charge, and if liquidation is viable, it will result in the formal closure of your company, and any unsecured debts will be written off.

In summary

You are able to close and liquidate a company with debts and start again in a new company. This is not a means of escaping the debt your company could be facing, but it instead allows the profitable core of a business the opportunity to start afresh. Pre-pack liquidation and pre-pack administration could be viable solutions for directors in these situations, though there are restrictions and considerations to take into account for companies created in the aftermath.

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