How Can I Close My Company?
Fast Liquidation Fact
How can I close my company? There are four ways to close a company which is no longer needed or trading. The essential ingredient in the selection process of which procedure to adopt is whether the company is solvent or not. The appropriate procedures to close your company if it is solvent are strike off and members voluntary liquidation but if insolvent, then usually it would be either creditors voluntary liquidation or compulsory liquidation.
Voluntary Strike Off – For Solvent Companies
If your company has no debts, or it has settled all outstanding liabilities, the simplest way to close it is through a voluntary strike off. This is done by submitting form DS01 to Companies House.
Before applying, you must:
Ensure the company hasn’t traded or changed its name in the last 3 months.
Inform all interested parties (e.g. HMRC, employees, creditors, and shareholders) by providing a copy of the application for strike off within 7 days of being sent to Companies House.
This is a low-cost method and often quick process, but it only works if no one objects.
Legally, it is possible to strike off an insolvent company. However, if the company owes money and its directors attempt to use the strike off procedure, then it can expect creditors to block the process, such as HMRC or a bounce back loan lender.
Members Voluntary Liquidation – For Solvent Companies with Assets
If your company is solvent but has retained profits or assets (such as cash or property), a Members Voluntary Liquidation might be more tax-efficient if the company has more than £25,000 of assets, which involves:
A licensed insolvency practitioner is appointed as liquidator.
Directors make a sworn statutory declaration of solvency that the company can pay all debts (within 12 months).
Remaining assets are distributed to shareholders.
This route is often used when closing a business after a sale or retirement. Funds distributed to shareholders may be subject to Capital Gains Tax rather than income tax, which can lead to tax savings, especially if Business Asset Disposal Relief (formerly known as Entrepreneurs Relief) applies.
Creditors’ Voluntary Liquidation – For Insolvent Companies
This process could, in theory, be used to wind up a solvent company, but this would be very unlikely. In the vast majority of cases, if your company is insolvent and cannot pay its debts, including tax, suppliers, or bounce back loans, a Creditors Voluntary Liquidation is the appropriate and popular route, which involves:
Directors voluntarily appoint a licensed insolvency practitioner to wind up the company.
The liquidator takes control, sells company assets, and distributes proceeds to creditors after costs of the liquidation process.
Unfortunately, debts often go unpaid once the liquidation is complete.
This is a formal insolvency procedure set out in the Insolvency Act 1986, but often necessary to deal with an insolvent responsibly. It also limits the risk of wrongful trading accusations and helps directors deal with their Creditor Duty.
Compulsory Liquidation – A Court Process For Insolvent Companies
Whilst it can be used to liquidate a solvent company, this is uncommon and more usually it is a procedure deployed if creditors are unpaid; they can petition the court to compulsorily liquidate your company. This is the most serious way to close a business and usually involves a winding-up petition from HMRC or another creditor.
It’s a court process, and once started, it’s hard to stop without coming to a compromise arrangement with the petitioning creditor such a paying their debt off. If you’re at risk of this, it might be suitable to consider whether you wish to opt for a creditors voluntary liquidation to close down your company once it has ceased trading.
