What happens largely depends on whether the business is solvent or insolvent.
A company is considered solvent if it can repay all of its debts reasonably within a 12 month period.
If it can then there’re several solvent liquidation options available, including a Members’ Voluntary Liquidation (MVL) and Dissolution
If a company can repay creditors and has at least £25,000 left over for distribution to shareholders then an MVL would be the most cost-effective way to close the business.
An MVL sees the company’s assets sold or realised with the proceeds used to make full payment to creditors.
Any remaining cash is distributed to shareholders and the company removed from the Companies House register.
MVL’s also allow shareholders to access Entrepreneurs’ Relief so they’re also tax-efficient.
If the business’ remaining assets are less than £25,000 once creditors have been paid in full then dissolution or striking-off might be a better choice.
The company can still be dissolved even if it owes creditors although they have to be informed and they have a three-month window where they can contest it.
All company activity should also cease including trading.
At the end of the process, the company is dissolved and removed from the Companies House register so it officially no longer exists.
If the company is insolvent then it can still be liquidated but the methods are different.
They include Creditors Voluntary Liquidation (CVL) or a compulsory liquidation achieved through a winding-up petition.
If a business can’t trade profitably anymore or its liabilities outweigh its assets then it’s insolvent.
A CVL or an insolvent liquidation means that the business is effectively closed and handed over to a liquidator.
Acting as liquidator, we’d deal with the company’s creditors from that point on, verify any claims then look to sell the business’ assets and distribute whatever funds raised.
A winding-up petition or compulsory liquidation is when a creditor decides to force the issue and looks to close the company down.
They’d do this to force the sale of any assets and to realise any repayment they can.
Businesses subject to a winding-up petition can also face serious consequences including frozen bank accounts or lease terminations.
Partnerships work slightly differently but we can also manage winding them up too.
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