I need to close my company due to Coronavirus (COVID-19)

If you need to close your company due to coronavirus-related debts or it was impacted by other potential problems with cash flow, business operations, and a limited ability to trade, you could have several options. Your company’s financial circumstances will determine which closure option is most appropriate for your company.

What should I consider when closing a limited company?

If you are considering closing your company due to coronavirus, you must first consider if your company is solvent or insolvent. An insolvent company is defined by:

• Cash flow test
  A company is unable to pay its bills and liabilities as and when they fall due.
• Balance sheet test
  If the company’s liabilities exceed the value of its assets or the amount you owe creditors is more than the company’s assets.
• Legal action test
  Creditors have taken legal action, such as County Court Judgments (CCJs), statutory demands and winding-up petitions.

By definition, a solvent company has sufficient assets, including cash at the bank, to settle all its liabilities in full, plus statutory interest, within a given period of less than 12 months.

Closure options for a company with coronavirus-related debts

The company’s circumstances will have a bearing on its options if it needs to close due to coronavirus-related debts, or any other financial issues. Those options could include:

• Close an insolvent company via a Creditors Voluntary Liquidation (CVL)
  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 closed.
  More on Creditors Voluntary Liquidation
• Close a solvent company via a Members Voluntary Liquidation (MVL)
  If your company is solvent, but coronavirus has affected the way you want to trade, or the market has changed to the point you feel it is better to close your company, a Members Voluntary Liquidation (MVL) is the most tax-efficient way of closing your company and withdrawing your cash from the company.
  More on Members Voluntary Liquidation

• Close and restart the company via a pre-pack liquidation
  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. A pre-pack liquidation is a form of liquidation following the same process as a CVL. Directors agree to the pre-purchase of the company’s assets before the insolvent company is then liquidated, allowing the directors to continue the business in a new limited company.
  More on Pre-pack liquidations
• Voluntarily Strike off the company
  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 reached the end of its useful life or the directors don’t wish to continue running the company.
  More on company strike-off

Although an insolvent company can apply for dissolution, the procedure is intended for solvent companies. Insolvent companies should enter a formal insolvency process if it has unsettled liabilities.

Can I close my company with an unpaid Bounce Back Loan (BBL)?

Yes, it is possible to close a company with a Bounce Back Loan. An unpaid BBL is classed as an unsecured debt, which can be included in an insolvency procedure and a formal liquidation.

You can apply to strike off a company with an unpaid BBL. However, BBL lenders and the Department for Business & Trade are objecting to dissolution.

Being unable to repay a 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.

How we can help

If you’re concerned that you may need to close your company due to coronavirus-related problems, or any other financial issues, 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 in dealing with closing companies.

1. Speak with our initial advisers via phone or online chat. If we can help, we will arrange a free consultation with one of our consultants to discuss your situation in more depth.
2. During the consultation, we will advise which insolvency procedure is the most appropriate route forward.
3. After your consultation, if there is an appropriate route forward, we will issue the relevant documentation for you to formally engage us.

In summary

If your company has to close due to coronavirus-related debts or any other financial issues, its specific circumstances will dictate which route will be most appropriate moving forward.

If the company has any debt that it cannot repay, it is buckling under creditor pressure, it is likely insolvent and should close through a Creditors Voluntary Liquidation (CVL).

If a change in the market means the company is no longer needed but can still pay its bills, it could enter a Members Voluntary Liquidation (MVL) if it has sufficient assets, or directors can strike the company off if it can settle its liabilities as they fall due.

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