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How to close a limited company that has stopped trading

When you wish to close down a limited company, there is a lot to consider. Whether you shut down voluntarily or are forced to shut down, there are processes and procedures to follow to make this legal and official.

Steps you need to take

As a director of a limited company, it is crucial that you follow the correct procedure when carrying out its closure. The below points must be carried out by any limited company wishing to close its doors, regardless of its financial status.

  • With voluntary liquidation, you must have the agreement of company directors and shareholders before entering proceedings.
  • As soon as you begin the process to close your company, you must first file a company tax return. In some cases, this may result in capital gains tax being owed by you or your company.
  • You must pay corporation tax for the final period of business. You will also have to pay this through the winding-up period itself.

These steps are vital to the process of bringing a limited company to a legal end, however, there may be extra stapes you need to take if your company is in a situation which requires it to meet extra criteria before it can be closed.

limited company

If your company is insolvent

If your company is insolvent, meaning it is unable to cover the costs of day-to-day expenses it is still possible to bring the company to a smooth, legal close. If this is the scenario your company is facing, the following methods are often the most suitable.

As a director, it is crucial that you recognise if your company is insolvent. Trading whilst insolvent may carry serious consequences for directors if it is deemed to have worsened the position of a company’s creditors.

Creditors Voluntary Liquidation (CVL)

A CVL is usually implemented when the financial instability of the company has reached such a state that the directors are concerned about accusations of wrongful trading. This method is used when a company is unable to repay all of its debts, and allows for the realisation of assets to take place in order to may repayments to creditors on a pro-rata basis.

Understand fully how a CVL works

Restart your business using a new limited company

In certain circumstances, directors of a failing company may be able to continue with their business under the name of a new limited company. The processes behind this are referred to as Pre-pack administration and pre-pack liquidation. They work through allowing for the sale of assets at market value, and allowing a new company (phoenix company) to start from the ashes of the old company.

Pre-pack administration

In a pre-pack administration, the transition between the old company and new company is quick and almost seamless. The wholesale of a company is organised before its closure, and often before entering into administration, but the old company may still continue trading after its assets are sold at market value and workforce transferred.

See a full breakdown of how a pre-pack administration works

Pre-pack liquidation

In pre-pack liquidation, the old company is liquidated and closed down. During this time, directors have the option to sell the company and its assets, and even purchase these at market value from the position of a new company. Once the process of a liquidation has begun, the old company must stop trading.

Get the full picture of a pre-pack liquidation

If your company is solvent

If your company is solvent, meaning it is financially capable enough to cover its outgoings, there are two main ways to go about closing your company. These are:

A strike-off from Companies House

In order to be accepted for a strike off from Companies House, a company must not have traded in the 3 months prior to the application. It is a common misconception that companies with debts cannot be dissolved, this is in fact possible. We offer supervised dissolution services to bring companies to a close through a strike off from Companies House. To enquire about this service, and to speak to a professional who can offer free advice, please get in touch.

A members’ voluntary liquidation (MVL)

If the sale of a company’s assets can raise enough funds to repay creditors in full, and have at least £25,000 left over for distribution to shareholders, then an MVL is often the most efficient way to bring the company to a close. An MVL will see these assets sold in order to repay the company’s debts, and allows shareholders to take advantage of Entrepreneurs’ Relief, making the process tax efficient. Wilson Field does not offer tax advice; we recommend speaking to your accountant or tax adviser before committing to a decision.

In Summary

When closing a limited company, the process depends on whether the company is solvent or insolvent. If the company is insolvent, meaning it can no longer meet day-to-day financial commitments, the director may be forced into liquidation by means of a winding-up petition, or equally it could be voluntary. Options such as pre-pack administration or liquidation are popular ways to revive a struggling business while going forward with a liquidation. If the company is solvent, you have more control over the steps you take to control the closure of your company, with processes such as a members’ voluntary liquidation (MVL) being straightforward methods of performing this.

How we can help

Whatever the reason behind you wishing to close your company, whether solvent or insolvent, we provide a free initial consultation to guide you through the process. Whatever method fits your company best, our licensed insolvency practitioners (IPs) will provide a fast, efficient service through every step of the process. Get in touch today to discuss your options with an experienced member of our team.

Authored by Lisa Hogg

Lisa Hogg

Director & Licensed Insolvency Practitioner