Closing down your business?

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

There are three main ways that a limited company can be closed down – with similar procedures available for sole traders and partnerships too. 

The best one will depend on the individual circumstances of the company because there are different costs and implications associated with them. 

Read on to familiarize yourself with them before letting us know which one you prefer.

 

Dissolution or Striking Off

This only applies if the business has ceased trading for over three months and doesn’t have any assets. 

Before dissolution can begin, the company has to have already paid off all of its debt. This is important because if you dissolve a business with outstanding debt then directors could be held personally liable for it and could incur even more costs if the company has to be resurrected to deal with these. 

The dissolution process itself is quite straightforward as it only requires a few letters and some form filing with Companies House. 

From beginning to end the process will take approx. four months – three months notice needing to be given at Companies House. However there are no creditors meetings to contend with and it’s usually a pain and stress free way of closing a business. 

There’s a set criteria that has to be met before you apply to strike off a company. We can carry out a free assessment as to whether your business is eligible for striking off and will handle all aspects of the dissolution process from beginning to end for a simple fee of £350 plus VAT. 

 

Members’ Voluntary Liquidation (MVL)

If the business still has material debts and assets remaining but you’re confident that it can reasonably pay these off within a 12 month period through selling the assets or other means, and still have surplus cash and/or assets remaining afterwards then a solvent liquidation or Members Voluntary Liquidation (MVL) would be the best way forward.

One key advantage closing down with an MVL bestows is that any distribution of assets or cash back to members is taxed under Entrepreneurs’ Relief rather than the usual tax rate which could have significant implications.  

It usually takes about four weeks to complete a Members Voluntary Liquidation. 

If there aren’t any assets for the liquidator to sell and just cash to repay creditors or return to shareholders once the company is in liquidation then the process can be completed within a few weeks. If the case is more complicated and the liquidator has to agree creditor claims and sell assets to repay them then it’s not unusual for the process to last months. 

We charge around £1,500 plus VAT fee for an uncomplicated Members Voluntary Liquidation. If there are assets that have to be sold and/or a substantial number of creditor claims to agree then a higher fee will be charged but this will be agreed in advance. 

Creditors’ Voluntary Liquidation (CVL) or Compulsory Liquidation

If the business doesn’t have enough cash or assets to pay back its debts in full then it’s considered to be insolvent. 

The best way to proceed here would be to a formal insolvency which means closing the business through either a Creditors Voluntary Liquidation (CVL) or a Compulsory Liquidation. 

A Creditors Voluntary Liquidation is when the directors and shareholders of a company voluntarily instruct an insolvency practice to liquidate the company on their behalf. 

In a Compulsory Liquidation, the directors or creditors petition the court for the company to be wound up. 

It usually takes about four weeks to complete a CVL or Compulsory Liquidation and the costs vary depending on the size and complexity of the business. 

If there are any employees, including directors, that have to be made redundant, large numbers of creditors, finance agreements or any other issues such as rent or landlord arrears then the agreed will be higher.

Pros and Cons

Dissolution

Pros

  • Straightforward
  • Inexpensive
  • You can buy back the company’s assets
  • No formal investigations into the conduct of the directors

Cons

  • Doesn’t terminate contracts or finance agreements
  • 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 had committed fraud
  • Could be held personally liable for any outstanding liabilities when you dissolve the company

Members Voluntary Liquidation (MVL)

Pros

  • Relatively inexpensive
  • Straightforward
  • You can buy back the company’s assets, or have them transferred to you ‘in specie’ 
  • The shareholders only pay 10% tax (Entrepreneurs Relief) on the money they receive
  • No formal investigations into the conduct of the directors

Cons

  • More expensive than dissolution
  • The directors are viewed to have committed an offence if it later materialises that the company was insolvent

Creditors’ Voluntary Liquidation (CVL) or Compulsory Liquidation

Pros

  • All company debts are 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 pay 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