The best way to close a UK company depends on its solvency. You need to consider whether the business can pay its bills as they fall due, as if that’s not possible, the company is likely to be cash flow insolvent.
Another type of insolvency occurs when a business’ liabilities exceed the total of its assets, and this is called balance sheet insolvency. It’s crucial to establish the financial position of your business prior to trying to close it down, as being insolvent means you need to take certain steps to protect your creditors.
If your business is solvent, you can close it down in one of two ways – Members’ Voluntary Liquidation (MVL) or company dissolution. MVL is likely to be your best option if you have assets exceeding £25,000 or your business affairs are complex, as it’s a tax-efficient procedure in these cases.
Members’ Voluntary Liquidation
Distributions from an MVL are taxed as capital rather than income, and if you’re eligible for Business Asset Disposal Relief (BADR) this liability may be reduced even further to a rate of 10 per cent.
Members’ Voluntary Liquidation must be carried out by a licensed insolvency practitioner, so it does attract professional fees, but when you weight this against the lower tax liability the benefits are clear.
Company dissolution involves winding down your business’ affairs over a period of time, including submitting company accounts and bringing your tax payments up-to-date. One of the requirements of company dissolution is that you must not trade, sell any stock, or change the company name for three months before your application.
Voluntarily dissolving your business means that its name is removed from the register at Companies House, but bear in mind that if any creditors exist, they can object to the dissolution and the business will be returned to the register.
Entering voluntary liquidation is the best way to close your company if it’s insolvent. There is an alternative whereby you wait for a creditor to take winding-up action against it, but doing this can have serious ramifications for you as a director.
Creditors’ Voluntary Liquidation (CVL)
By voluntarily placing your company into liquidation you can protect your creditors from further losses, and minimise the risk of wrongful trading allegations. UK insolvency laws state that you must prioritise creditor interests in this situation, and a process called Creditors’ Voluntary Liquidation enables you to do so.
CVL also offers you more control when compared with compulsory liquidation - you can decide when to enter the process, and also choose your own liquidator. A further advantage of following this closure route is that you may be eligible to claim director redundancy pay.
Initially, you’ll need to determine your company’s solvency, and then if it’s solvent, the level of distributable profits will guide you towards the best method of closing down the company.
In most cases, you’re protected from personal liability if your company is insolvent and has to be liquidated. This is due to the business’ incorporation, which legally separates the company’s finances from that of its directors.
This protection can be removed, however, if misconduct or unlawful activity is uncovered by the liquidator – taking illegal dividends, for instance, or if you’ve transferred business assets away from the company’s ownership.
UK Liquidators can help you decide on the best closure method for your business. We’re business closure specialists and provide trustworthy independent advice. We also offer free, same-day consultations so you can quickly obtain the information that you need.
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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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