To voluntarily enter a company into a liquidation procedure, shareholders representing at least 75% in value of those attending and voting must vote in favour of the resolution to wind up the company. Directors can then formally engage with an insolvency practitioner and appoint them as liquidators.

Is the company solvent or insolvent?

When considering whether to wind up your company, it’s important to understand whether it is solvent or insolvent.

A company is considered insolvent if:

• It cannot repay its liabilities as and when they fall due.
• The company’s liabilities exceed the value of its assets.
• Creditors have threatened or taken legal action, such as County Court Judgments (CCJs) or statutory demands, which would leave the company unable to meet its liabilities as they fall due.

Even if a company is in one or all of the positions above, it doesn’t mean it’s definitely insolvent. If you’re worried about the solvency status of your company, contact us for free, impartial advice.

How to wind up and close a solvent company

If you want to wind up your limited company and it has enough cash to cover its liabilities, you can apply for a Members’ Voluntary Liquidation (MVL). To enter a company into an MVL, 75% of shareholders must agree to pass a winding-up resolution and formally appoint an insolvency practitioner.

Alternatively, if there are no assets within your company, you could apply directly for the company to be struck off at Companies House.

• Members’ Voluntary Liquidation
  A Members’ Voluntary Liquidation (MVL) is the liquidation of a company that is solvent. An MVL is typically used when the company has no further purpose or one or more of the shareholders want to withdraw their money from within the company in a tax-efficient manner.                                            
  • An MVL is the most tax-efficient way of closing down a limited company and can be used where more than £25,000 is to be distributed to shareholders.
  • Directors could also benefit from Business Asset Disposal Relief (formerly Entrepreneurs’ Relief).
  • Subject to shareholders signing an indemnity, there’s no need for HMRC to give clearance before the cash can be released; this means funds can typically be distributed within seven working days.

• Striking off and dissolution
  Dissolution ends a company’s legal existence by striking it off the register at Companies House. A strike-off/dissolution is a voluntary procedure for a company that has perhaps reached the end of its useful life.
  • The procedure should not be used as an alternative to a formal insolvency process where one is appropriate.
  • A dissolution is for companies with no outstanding debts or creditors.

How to wind up and close an insolvent company

If your limited company is unable to pay its debts, with 75% of shareholder agreement, a winding up resolution can be passed and an insolvency practitioner can be formally appointed to carry out a Creditors’ Voluntary Liquidation (CVL) procedure. This process allows for the orderly winding up of the company’s affairs and distribution of assets to creditors.

• Creditors’ Voluntary Liquidation
  A Creditors’ Voluntary Liquidation (CVL) is a formal insolvency procedure used to close an insolvent company. The process must be performed by a licensed insolvency practitioner.
  • All unsecured debt is written off with the formal liquidation of the company.
  • Creditor pressure is removed, and directors can walk away from the company without any remaining debts unless they have signed personal guarantees.
  • Employees who are made redundant will still be able to receive redundancy payments from the Redundancy Payments Service if the company cannot pay its redundancy claims.

• Pre-pack liquidation
  A pre-pack liquidation is an informal term for a type of CVL. In this process, there is a pre-arranged agreement to sell the company’s assets to a newly formed company before the original company is formally liquidated. This approach allows for a smoother transition and continuity of business operations under the new entity. This is also referred to as a ‘Phoenix’.
  • A pre-pack liquidation allows one company to close its doors whilst opening a new company in its place, providing a fast and secure transition of the business.
  • The new company will be able to start trading without the burden of any historical debts or any creditor pressure.

Compulsory Liquidation (Winding-up Petition)

Compulsory liquidation is forced upon a company when creditors petition the court to have a company formally closed and wound up. A creditor can apply for a winding-up petition when they’re owed a minimum of £750. The courts will then liquidate the company and distribute any proceeds to the company’s creditors. One complete, the company is formally dissolved. When a company enters into compulsory liquidation, the directors no longer have control to appoint their own liquidator.

How we can help

If you suspect your company is insolvent or a winding-up petition could have been filed, it’s essential you act quickly. We have an experienced team of initial advisers to assess your circumstances and direct you down the best path for your company.

1. Speak with our initial advisers by phone or online chat.
2. After initial assessment, we will identify whether liquidation is appropriate for your company.
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

A company’s solvency position has a bearing on how you wind up and close that company. Solvent companies can close via a Members’ Voluntary Liquidation (MVL), allowing a distribution of the company’s assets to the shareholders and the possibility of claiming Business Asset Disposal Relief.

Insolvent companies should close via a Creditors’ Voluntary Liquidation (CVL), closing the company in an orderly manner before it’s forced into compulsory liquidation. Depending on its circumstances, directors may be able to continue the business in a new limited company free from the debts of the old one via a pre-pack arrangement. Whether this will be allowed depends on your specific circumstances.

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