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When closing a company, company debts will typically be settled and the remaining written off, depending on the company closure route you take, however, there are strict exceptions. Certain debts will not erase with the business, such as debts tied to personal guarantees which the company director must personally repay. Company directors can also be personally liable for company debts if misconduct is uncovered.
We look at what happens to company debts when a director seeks to voluntarily liquidate a solvent or insolvent company, strike off, or must compulsorily liquidate.
If a company director seeks to voluntarily liquidate an insolvent company through a Creditors’ Voluntary Liquidation (CVL), the debts will be handled in an orderly manner by a licensed insolvency practitioner. Throughout the CVL process, the insolvency practitioner will set out to raise funds for creditors which may involve liquidating company assets. Any remaining debts will typically be written off, excluding personal guarantees.
If a company director seeks to voluntarily liquidate a solvent company through a Members’ Voluntary Liquidation (MVL), company debts must be settled before the MVL is pursued. For an MVL to be suitable, the company must be debt-free.
The company strike off route is reserved for companies with no debts. If a company director attempts to close a company with debts by submitting a DS01 form, the strike off application may be rejected.
As part of the strike off process, company creditors will be notified of your intention to strike off, at which point, the likes of HMRC may object if they are owed money. If you have company debts and your strike off application is successful, a creditor can apply to restore the company at a later date to collect the debt. Read more about what happens to debts when a company is struck off.
A company with debts must pursue a formal liquidation process to strategically manage company debts and pay creditors in the prescribed priority order, as set out by the Insolvency Act 1986.
When a limited company is forced into compulsory liquidation as a result of a winding up petition, company debts are settled to the fullest extent and any remaining debts are written off. In the event of compulsory liquidation, a liquidator will take control of the company, typically an Official Receiver or a licensed insolvency practitioner, to handle the closure of the company.
The UK Liquidators team are highly experienced company closure experts and licensed insolvency practitioners. For more information on how to close a company with debts and when you can be held personally liable for company debts, get in touch with an expert adviser today. We offer a free, confidential consultation and have over 100 offices across various locations across the country.
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If you are considering liquidation for your company, taking expert advice at an early stage is crucial. At UK Liquidators, our team of licensed insolvency practitioners are committed to providing limited company directors with the help and advice they need to make an informed decision.
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