When closing down a dormant company, you need to consider whether the company is solvent or insolvent. Knowing this answer will determine the action taken when closing down the company.
If you are a shareholder and there is no active director – you will need to appoint a new director.
If the company is solvent
A solvent company has two options to consider when closing:
A company dissolution is when you voluntarily end your company’s legal existence by striking it off the register at Companies House. This is done by written application to Companies House and payment of the appropriate fee. Directors usually apply for dissolution when a company has reached the end of its life. You should be sure that you have not traded for at least three months and that you have no outstanding legal or insolvency procedures against you.
Members voluntary liquidation (MVL)
An MVL is a tax-efficient way to close a solvent company, remove it from the register and release your share capital out of a company whilst benefiting from Business Asset Disposal Relief (Entrepreneurs’ Relief). You can use an MVL to withdraw your investment, but you should be aware that distributions over £25,000 that you take from the company fall under tax rules for capital distributions and as such will be subject to capital gains tax (CGT). Wilson Field does not offer individual tax advice and always advise speaking to an independent tax advisor before proceeding with an MVL.
Using an MVL means that you will usually be eligible for Business Asset Disposal Relief (Entrepreneurs’ Relief) reducing the level of CGT you will pay to only 10%.
If the company is insolvent
An insolvent company must use the following process to close down the company:
Creditors voluntary liquidation
In some cases, a company director may want to close the business, but simply doesn’t have enough cash to pay all the creditors in full. At this point, a dissolution for the company wouldn’t be right and an insolvency practitioner would need to manage the process.
A creditors voluntary liquidation will see the end of a company as it is struck off from companies house and ceases to exist. When creditor pressure has got too much, or a company has been dormant for a long time a CVL is the best way to go. An insolvency practitioner would close all offices the company has, with any staff being made redundant. Any assets the company has would be sold and distributed equally amongst creditors on a pro rata basis.
There are many considerations to take into account when closing down a dormant company. One of the most important considerations is to determine whether the company is solvent or insolvent. If the company is solvent, a dissolution or members voluntary liquidation would be the best way to close the company. If it is insolvent, a creditor’s voluntary liquidation would be the appropriate process.
An insolvency practitioner will be able to determine which is the most appropriate course of action for your company. Closing your company through an MVL or CVL would require the use of an insolvency practitioner.
How we can help
If you are looking to close down your dormant company, we can help guide you through the potential procedures. Whether solvent or insolvent, we will be able to advise you on best route. We are a licensed insolvency practice who can ensure you comply with the right regulations.