“It costs less than £100 to set up a limited company, but the costs of closing down can be considerably higher, especially if the wrong approach is taken!”

There are three main ways of closing down a limited company, with similar procedures available for sole traders or partnerships. The way that suits you best will depend on the circumstances of your company. As there are such differences in the costs and implications between the three, it is well worth carefully examining which means of business closure before you decide. Below we examine the 3 main options.

Dissolution (also known as ‘Striking off)

This is applicable only if you have a company that has ceased trade for over three months and no longer has any assets. Before dissolution, your company must have already paid off all its debt – this is important, as if you dissolve a business whilst debt is still outstanding, you could be held personally liable and incur considerable costs if the company has to be resurrected! If done correctly, dissolution itself is straightforward requiring only a few letters and some form filing at companies house.

The whole process would normally take approximately 4 months, as 3 months notice needs to be given at Companies House. However, there are no awkward creditors’ meeting to contend with, and as such, it’s viewed as a pain free way of closing a business.

There is set criteria that have to be met prior to a applying to strike off a company. Robson Scott will carry out a free assessment as to whether your business is eligible for striking off. We then charge £350 plus VAT to dissolve your company, dealing with the process from beginning to end.

Members’ Voluntary Liquidation (“MVL”)

If however your business has material debts and assets remaining, but you are confident that it could reasonably pay off its debts within a 12 month period (normally by selling its remaining assets), and still have surplus cash or assets, then a solvent liquidation, also referred to as Members’ Voluntary Liquidation (“MVL”) would suit.

One of the main benefits of closing down via a MVL rather than Dissolution is that any distribution of assets or cash back to members should be taxed at 10% (Entrepreneurs’ Relief), as opposed to your usual tax rate.

It usually takes about 4 weeks to get a company into a Members Voluntary Liquidation. If there are no assets for the liquidator to sell, rather only cash to repay creditors and give back to shareholders, then once the company is in liquidation, the liquidation itself can normally be completed within a few weeks. More complicated cases where the liquidator has to sell assets and agree creditor claims can take several months to complete.

Robson Scott charge £1,750 plus VAT for uncomplicated Members’ Voluntary Liquidations. Where there are assets that need selling and a substantial number of creditor claims to agree, a higher fee will be agreed in advance.

Creditors’ Voluntary Liquidation or Compulsory Liquidation

Lastly, if your businesses assets are not enough to pay back its debts in full, it is insolvent, and the correct procedure here would be a formal insolvency, which in terms of closing down your business would mean either a Creditors’ Voluntary Liquidation (“CVL”) – whereby the director and shareholders voluntarily liquidate the company and instruct an Insolvency Practice to act on their behalf, or Compulsory Liquidation – whereby you or one of your creditors petitions the court for your company to be wound up.

It normally takes about 4 weeks to get a company into this type of liquidation, and the cost of doing so varies depending on the size and scope of the company.

£2,750 plus VAT is the minimum price we charge to place a company into Creditors Voluntary Liquidation. Again, if there are employees to make redundant, large numbers of creditors, finance agreements, or other issues such as landlord arrears, then the agreed fee will be higher.

A compulsory liquidation is charged at £1,500 plus VAT, but there are also court costs of around £900. The disadvantage of a compulsory liquidation over creditors’ voluntary liquidation is that the liquidator is the Official Receiver, rather than a liquidator of your choosing.

Below is a summary of the pros and cons for each of the options

Dissolution

Pro’s

  • It’s straightforward
  • It is inexpensive
  • You can buy back the company’s assets
  • It avoids formal investigations into the conduct of the directors

Cons

  • It does not terminate contracts or finance agreements
  • Most stakeholders can apply to resurrect the company, if:
    – The correct procedure wasn’t followed
    – The company had been trading within the three months prior to applying to dissolve
    – The directors have committed fraud
  • If there were outstanding liabilities when you dissolved the company you might be held personally liable

Members Voluntary Liquidation

Pros

  • It is relatively inexpensive and straightforward
  • You can buy back the company’s assets, or have them transferred ‘in specie’ to you
  • The shareholders only pay 10% entrepreneurs relief on the money they receive
  • There is no formal investigations into the conduct of the directors

Cons

  • It is more expensive than dissolution!
  • The directors are viewed to have committed an offence if it later materialises that the company was insolvent, not solvent ie. it was unable to settle all its debts from selling its assets

Creditors’ Voluntary Liquidation or Compulsory Liquidation

Pros

  • All company debts is written off
  • All contracts and finance agreements are terminated
  • You can buy back the company’s assets
  • Staff may be able to claim for outstanding wages, notice period, holiday pay and redundancy from the Redundancy Payments Office

Cons

  • It can be quite expensive
  • Staff are made redundant
  • Creditors are unlikely to get repaid in full, if at all
  • A formal report on the conduct of the directors must be prepared by the liquidator and submitted to the Insolvency Service

If you have any queries regarding closing down or liquidation, feel free to get in contact with me at ewall@robsonscott.co.uk for more information.