The coronavirus pandemic has caused a lot of problems for businesses, with potential problems with cash flow, business operations and a limited availability to trade. With such pressure on companies and creditors chasing, what can you do if you need to close your company because of coronavirus?
Considerations when closing a limited company
If you are considering closing your company because of coronavirus, you must firstly consider if your company is solvent or insolvent. An insolvent company is defined by:
- A company unable to pay its bills and liabilities as and when they fall due.
- If the company’s liabilities exceed the value of its assets, or if the amount you owe to creditors is more than your company’s assets.
- Other warning signs for your company can come in the form of creditors taking legal action, such as County Court Judgements, statutory demands and winding-up petitions.
A solvent company by definition, is if it has sufficient assets, including cash at bank to settle all of its liabilities in full, plus statutory interest within a given period of less than 12 months.
How we can help
If you’re concerned that you may need to close your company because of coronavirus, our initial advisors can provide free, impartial advice based on your circumstances with no obligation. We have a team of licensed insolvency practitioners, who have experience of dealing with closing companies due to the pandemic.
- Closing via a voluntary liquidation
- Restarting your company
- Strike your company off
Close my company through liquidation
A creditors voluntary liquidation (CVL) is a formal insolvency procedure used to close an insolvent company. If coronavirus debts have become unmanageable, pressure from your creditors is mounting and the business has no realistic viable future, a CVL will see the company formally shut and its doors closed.See more on Creditors Voluntary Liquidations here
Find out more about Members Voluntary Liquidations here
Restart the company
If the coronavirus pandemic has pushed your company to a point of no return, there is the option of closing the company and starting again. This is commonly known as a pre-pack liquidation. It follows the same process as a creditors voluntary liquidation, except the director re-purchases the former company’s assets at market value and the company is then liquidated.
A pre-pack liquidation is most appropriate where it’s clear that the company has a profitable core, but pressure from creditors is threatening its existence. Restarting the company is often referred to as a ‘Phoenix Company’.Find out more about Pre-pack Liquidations
A strike-off will end a company’s legal existence by striking it off at the register at Companies House. This procedure is voluntary and is for a company that has perhaps reached the end of its useful life. Although an insolvent company can be dissolved in certain circumstances, the procedure should not be used as an alternative to formal insolvency procedures where these are appropriate.
What if I still have an unpaid Bounce Back Loan?
Many companies throughout the coronavirus pandemic have taken advantage of the government-backed bounce back loan scheme. Despite the financial help, a high number of companies have been unable to manage the repayment of these loans.
I can’t afford to repay my BBL
Not being able to afford your bounce back loan could be a sign that your company is insolvent. If your company goes into liquidation, the bounce back loan becomes an unsecured debt. During the liquidation process, creditors who have an unsecured debt don’t have any substantial claims over company assets, so once the company is fully liquidated, the debt will be written off.
The coronavirus pandemic has caused many companies to close their doors, as the usual means of trading have been so heavily affected, even with government aid you may still need to close your company because of coronavirus. If you find yourself facing too much creditor pressure, there are several means of closing your company down.
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