Closing a limited company

If you are looking to close your limited company and wind up its affairs, you may be wondering about the best way to bring your business to an end. There are various to close your limited company, and much of this will depend on if the company is solvent or insolvent at the time of closure.

Company closure options when shutting down your business

If your company is solvent – meaning it does not owe any company, individual, or HMRC any money – then you can close the business through a Members’ Voluntary Liquidation (MVL). All assets will be identified by the appointed insolvency practitioner, and these will then be distributed to shareholders as capital gains.

If your business has debts, however, the company closure process is different. You can still close a company that owes money to HMRC or other creditors, however, this will need to be done through an alternative insolvency procedure.

Closing an insolvent limited company with debts

Closing a company with debts is achieved through a process known as a Creditors’ Voluntary Liquidation – or CVL for short. This formal business closure process allows a limited company director to wind up their company voluntarily, while ensuring outstanding creditors are treated fairly and in accordance with the Insolvency Act 1986.

Closing a limited company through a CVL can only be done under the guidance of a licensed insolvency practitioner. Once appointed, trading will immediately cease, and it will then become the responsibility of the insolvency practitioner to handle the company’s affairs from that point onwards.

This includes identifying and realising the value of company assets, dealing with creditors of the business, and ensuring the company is closed down in the correct way at Companies House. Creditors will be repaid as far as possible using the liquidated assets of the company, however, any debt which remains outstanding after this has been done will be written off unless it has been secured with a personal guarantee. 

In the event of a personal guarantee being in place, when the company is closed, the guarantee will crystalise and the responsibility for repaying the remaining balance of the borrowing will pass to the individual who gave the guarantee. 

Closing a limited company at Companies House by strike off

A company can also be closed by applying to have it dissolved and struck off the Companies House register. This is an informal business closure process and striking off is only suitable for those companies without debt. Dissolving a company in this way may be suitable for those limited companies which have never traded or are otherwise dormant. If your company does not owe any money and you want to close it down, winding the business up and dissolving it at Companies House could be a way of achieving this.

In order to close a company via the strike off process, the business must not have traded, changed its name, or sold any property in the three months prior, nor must there be any ongoing legal action against the company. The process starts by submitting a DS01 form to Companies House along with the appropriate fee, and the directors must then ensure they:

1. Close down the payroll
2. Submit all outstanding statutory returns and accounts
3. Pay outstanding tax liabilities
4. Sell or transfer assets out of company ownership
5. Inform creditors of the intended closure
6. Close the company’s bank accounts

Once the application has been accepted by Companies House, a notice will be placed in the Gazette. If no creditors come forward to object, the company name will be removed from the register.

If your business has outstanding debts, however, company strike off will not be appropriate and you should take expert advice on how to close your company via a formal liquidation process.

Take advice on company closure

It must be remembered, that company closure is a complex area, particularly if your limited company has debts it cannot repay, that is why seeking early advice from a licensed insolvency practitioner is vital.

Continuing to trade while knowingly insolvent is a breach of your duties as a company director, and it could be that shutting the company is the best option for all concerned.

An insolvency practitioner will be able to talk you through the options you have for winding up your business and bringing your company to a close in the best way possible.