How to close a limited company

Closing a Company

You can close a limited company in the UK in a number of different ways. The option which is right for your company will largely depend on if the company is solvent or insolvent at the time of closure.

What are the different ways to close a limited company?

There are different ways to close a limited company depending on whether the business is solvent or insolvent at the time of closure. 

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 solvent Members’ Voluntary Liquidation (MVL) process. All assets of the company will be distributed to shareholders as capital gains as part of the liquidation process.

If your company has debts that it cannot afford to repay, however, and is therefore classed as insolvent, the company closure process is different. You can still close an insolvent company that owes money to HMRC or other creditors, however, this will need to be done through an alternative liquidation process known as a Creditors' Voluntary Liquidation.

How do I close an insolvent limited company with debts?

Closing a company with debts via a CVL allows a limited company director to wind up their company voluntarily, while also 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, the company will cease trading, and the appointed insolvency practitioner will take over control of the company’s affairs from that point onwards.

An insolvency practitioner's role when closing a company includes identifying and realising the value 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, with any debt remaining outstanding after this point being written off unless it has been secured with a personal guarantee. 

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

How do I close 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 has minimal assets, winding the business up and dissolving it at Companies House could be a way of achieving closure in a time and cost-effective manner.

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.

Once the DS01 application has been received by Companies House, a notice will be placed in the Gazette. If no creditors come forward to object to the proposed striking off, the company name will be removed from the register and the company will be officially closed.

If your business has outstanding debts, however, company strike off will not be an appropriate way to close the company. In this instance you should take expert advice on how to close your company via a formal liquidation process instead.

How much does it cost to close a limited company?

How much it costs to close a limited company depends on which closure method is chosen. 

For an insolvent company, a Creditors' Voluntary Liquidation (CVL) can cost around £4,000 - £6,000, however, for more complex cases with more complex debt positions, this cost could be more. The fees associated with a CVL takes into account the need to appoint a licensed insolvency practitioner to conduct the process on your company's behalf. The cost also includes certain statutory requirements, such as placing notices in the Gazette to inform third parties of the imminent closure of your company.

For those companies that can be closed via the strike off process, the cost is minimal in comparison to liquidation. This is because there is no requirement to appoint an insolvency practitioner; in fact, the whole process is done by the company directors themselves and can be completed fully online.

What happens to debt when you close a limited company?

When a company is liquidated, outstanding creditors will be repaid using the proceeds from selling company assets. In the case of an insolvent company, however, there will not be enough money raised in order to fully pay each creditor what they are owed. In many instances, there is in fact a significant shortfall, meaning a substantial amount of company debt remains after the business has been closed following liquidation.

Any debt which remains after a company has been closed via liquidation will be written off in the vast majority of cases. This is because a limited company is classed as a separate legal entity to that of its directors, meaning the debts of a limited company belong to the company itself and not its directors or shareholders. As the company has been closed via liquidation under the guidance of a licensed insolvency practitioner, you can be sure the closure of the company has been done in full accordance with the Insolvency Act 1986. 

The same cannot be said when a company is closed via the DS01 strike off option. Although this closure method should only be used by solvent companies, sometimes an insolvent company will apply for strike off and occasionally this will go through unchallenged.

In this instance, however, an outstanding creditor of the dissolved company can apply to the courts to have the company reinstated to the Companies House register in order for them to continue chasing for the debt which remains unpaid. You can only be sure unaffordable debts of a company are written off and legally cleared by closing the company via liquidation. 

Can I be held personally liable for company debt when I close it?

As the company is responsible for its own debts, directors will not find themselves personally responsible for repaying these should the company have to close before all debts are repaid. This is due to something known as limited liability.

However, there are certain circumstances when the director of an insolvent company can be held personally liable for the debts of their limited company:

• Personal Guarantees - If a director or shareholder has provided a personal guarantee to underpin company borrowing, they will assume legal responsibility for repaying this debt should the company become insolvent and has to close. 
• Fraudulent trading - If a company director is found guilty of fraudulent trading, they may be asked to pay a compensation order to creditors in order to cover the financial losses they have incurred as a result of the fraudulent activity

How to close a limited company that has never traded?

If you are the director of a limited company that has never traded, there are a number of closure options open to you.

The first option to close a company that has never traded is to apply for voluntary strike off using the DS01 dissolution process. This can be a great closure option for a never traded company as there are no assets or debts to deal with. The strike off process is relatively quick and can be completed for just £33 when you apply for strike off online.

An alternative to closure is to apply to make the company dormant. This could be a great option if you want to keep open the possibility of trading through the company in the future. You can make a limited company dormant for an indefinite length of time safe in the knowledge that your company name is reserved for you when you want to begin trading.

Where can I get advice on closing my company?

Company closure is a complex area, particularly if your limited company has debts it cannot repay, which 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, however, closing your company in the wrong way, particularly one which is detrimental to your creditors, will also see you falling foul of your legal responsibilities as the director of an insolvent company.

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