Closing a company can be done by various options depending on the financial status of the company i.e. whether the company can pay off its bills (solvent) or whether the company cannot pay off its bills (insolvent).
A company is defined as solvent if the assets exceed the liabilities and creditors can be paid in full within 12 months of the debts falling due. If the company is solvent, depending on the value of assets the company can be closed either by Striking Off/Dissolution or MVL.
Normally when a company has fulfilled its purpose and is no longer active, dissolution (otherwise known as striking off) represents a cost-effective way of striking off a company from the register at Company House.
This can be done by submitting form DS01 at a cost of £10 which has to be paid to Companies House. By submitting the form, Directors are confirming that the Company:
Has not traded in the last 3 months
Has not changed its name in the last 3 months
Isn’t subject to insolvency proceedings or have any legal actions outstanding against it.
Directors should be aware that a Company’s asset position must also be considered prior to Dissolution. Assets that still belong to the Company upon dissolution would now be regarded as ‘Bona Vacantia’ (vacant goods) which by law pass to the Crown. Companies House has itself the right to dissolve a company for non-compliance. This may be as a result of a Company:
Not having a director in office
Failing to file confirmation statements
Failing to file annual returns or accounts
When a company is dissolved, it will remain on the Register and marked as “dissolved”. This status will remain for 20 years at which point it will be archived.
An MVL is the most tax efficient way of closing a solvent company. This exit tool is useful for companies with a complex structure or where the value of the assets (after creditors have been paid off) is likely to exceed £25,000.
An MVL is useful
when the owner of the family business wants to retire and there is no one to carry on with the business.
when a business owner wants to free up assets from an existing company to fund a new venture
when the company was used by a Contractor, who is now going being paid by PAYE (As a result of IR35)
Unlike Dissolution/Striking Off which is a simple, cost effective way to close a solvent company with no assets, the cost involved with MVL is higher because of the need to appoint a liquidator.
The appointed liquidator’s main responsibility is to realise the assets, pay any remaining liabilities and distribute them to shareholders of the company.
When taking into account tax considerations this is a viable option that makes sound financial sense.Our MVL starts from £1500. Find more about different MVL packages here
A company is considered insolvent if the company cannot afford to meet its day to day liabilities when they fall due i.e. when the liabilities outweigh its assets.
Additionally, there is also the balance sheet test, whereby the Company’s liabilities outweigh its assets.
The company directors can voluntarily choose to close the business and wind the company up using the CVL method.
This can be done before creditors forcibly try to close the Company through a Winding Up Petition issued in the court.
For a business that is Insolvent, The CVL process is used when directors choose to voluntarily put a company in liquidation. A director can propose a CVL when the company has been in financial distress and cannot pay off its debts and the shareholder agree and passes a winding up resolution.
The main advantage of CVL is that it allows directors the ability to take charge of the process.
Directors can discuss their options with a Licensed Insolvency Practitioner who can advise you of the options available. This is preferable to leaving your Company’s fate in the hands of creditors.
Following a CVL, there are many options for the directors to restart their business under a different name, but this is much harder after Compulsory Liquidation.
If your company is Insolvent and you are planning to close the company. contact us for a free no obligation advice on your current situation on 0800 093 4270
Unlike in a CVL, where the directors voluntarily choose to close an insolvent company, compulsory liquidation leads to a court-ordered liquidation.
This is a court-based procedure which is started by creditors, upon the filing of a petition at court.
Winding Up Petition: The first step of compulsory liquidation starts with issuing a winding up petition by the creditor against the debtor company. Following the issue of the petition it is then advertised in the London Gazette which likely results in the company account being frozen leaving the company unable to trade.
Winding Up Order: After another 7 days of issuing the winding up petition when the court is satisfied that the company should be liquidated, a Winding Up Order is issued and the Official Receiver(liquidator) will be appointed. At this point, the powers of the directors’ cease allowing the appointed liquidator to take control of the company.
Selling of The Company Assets: The primary objective of the appointed official receiver is to repay as much as possible to the creditors. They then begin the process of valuing, marketing and selling of the assets. At this stage the director is required to assist the liquidator in providing a statement of the company’s assets. If as a director you have a contract of employment with the company, this is automatically terminated and like the rest of your employees, you would claim any employment entitlements from the Redundancy Payments Service.
Dissolution of The Company: Once the assets are being sold, the company will be officially shut down and will be removed from the Register at Companies House.
Unless the director has provided any personal guarantee, any other debts which remain outstanding will be written off.
However, there are certain restrictions on the re-use of the same or similar name as the liquidated company, which are set out in Section 216 of the Insolvency Act 1986.
The legislation was enacted to prevent directors from liquidating companies and then starting up a “phoenix” company straight away.
The restrictions apply to anyone who has been a director of a company in the 12 months before it goes into insolvent liquidation.
A Director is restricted, for a period of five years, from using the same name or a name so similar to suggest an association.
This applies to the company name and any associated trading names or styles.
Directors of the insolvent company should not be involved directly or indirectly in such a company and if found guilty of breaching s216, would be liable to imprisonment or a fine or both, as well as being made personally liable for the debts of the new company under s217.
There are three exceptions to the ban.
When the business of the liquidated company is acquired, a Director may use the name if, under arrangements made with the liquidator, the whole, or substantially the whole, of the insolvent company is sold by, or otherwise acquired from, the liquidator. Notice must then be sent to creditors of the insolvent company and published in the London Gazette within 28 days of the date of acquisition from the office holder.
If a Director applies to court for permission to use a prohibited name within 7 business days of the date the company went into Liquidation, he/she may use the prohibited name for up to 6 weeks from the date of liquidation or for any lesser period decided upon by the court.
If the prohibited name has already been in use for 12 months prior to the liquidation.
This depends upon the complexity and size of the Company. In many circumstances, the process can be completed within 6 to 12 months, whilst in other situations it may take some time before all assets are realised and the process can be completed.
This will depend upon the complexity and size of the liquidation.
Our Members Voluntary Liquidation (MVL) starts from £1,500 + (VAT + Disbursements). Find Out More
Please call on 0800 093 4270 for a free no obligation consultation from one of our licensed insolvency practitioners or complete the enquiry form.Our initial advice is free and we offer a nationwide service.