Can I close my company if it is running at a loss?

Operating at a loss is nothing new in the world of business. It’s common for expenditure to exceed income during periods of growth or when you’re just starting out. Running at a loss at certain times of the year is also common for seasonal businesses. In the short term, you can use retained profits, access external funding or seek new investment to keep the business operating as normal. However, that’s not sustainable over the longer term.

If your business is operating at a loss and you cannot return to profitability, or the company is starting to accumulate debt it cannot repay, that’s a sign of a more serious financial problem.

If your company is making a loss and you no longer want to run it, or it’s insolvent and cannot pay its debts, there are various ways to close it.

Closing a solvent company running at a loss 

If your company is running at a loss but is still solvent, meaning it can pay all its debts before you shut it down, you can close it via a process called Strike Off or solvent liquidation. 

• Strike Off – This is a process you can initiate and administer yourself and is the cheapest way to close a solvent limited company. You will need to prepare the company for Strike Off by winding down its affairs, paying any outstanding debts, submitting final tax returns, selling or transferring ownership of business assets and closing the company’s bank accounts.
  
  You can then apply to Companies House to strike the business off the Companies House register. As long as you complete the form property and meet the criteria, the company will be removed from the register after around two months and will cease to exist. 

• Members’ Voluntary Liquidation (MVL) – If your business is running at a loss but is solvent and has valuable assets to sell for the benefit of its shareholders, a Members’ Voluntary Liquidation is usually the best approach.You must appoint an Insolvency Practitioner to liquidate the company on your behalf. That will incur a fee, which can be paid from the proceeds of the sale of assets. An MVL is the most tax-efficient way to close a company with significant assets, as all the distributions are taxed as capital rather than income. You may also be eligible for Business Asset Disposal Relief, which reduces the tax payable.

Closing an insolvent company running at a loss 

If your company is running at a loss and is also insolvent, you must act in the best interests of your creditors. If you cannot rescue the company, you’ll have no choice but to close it.

• Creditors’ Voluntary Liquidation (CVL) – You can voluntarily close an insolvent company by appointing an Insolvency Practitioner and entering into a Creditor’s Voluntary Liquidation. Acting as the liquidator, the Insolvency Practitioner will sell the company’s assets and wind the company down. They will use the proceeds from the sale of assets to repay your creditors as much as possible, and any outstanding debts will be written off.

As long as you have met your legal duties as a company director, the creditors will not be able to pursue you personally for company debts. A CVL incurs a fee, which will usually covered by the sale of assets, and you may also be eligible to claim director redundancy pay. 

• Compulsory Liquidation – Your creditors can force you into liquidation if they feel it’s the best way to recover an outstanding debt. They can do that by serving a Statutory Demand or County Court Judgment (CCJ). If you do not pay what you owe, they then can issue a Winding Up Petition and the court will decide whether to liquidate the company. 

In this case, an Official Receiver will be appointed by the court to sell the company’s assets and pay the proceeds to its creditors. Any remaining debts will be written off and the company will be closed. The Official Receiver will also investigate the directors to determine whether their actions led to the company’s insolvency or if any misconduct occurred. If it did, you could face consequences, including becoming personally liable for company debts and directorship bans.

At Company Closure, we can assess the financial circumstances of your business, discuss your options and advise you on the most appropriate and cost-effective way to bring it to an end. We help company directors like you every day and work to simplify the process. Get in touch for a free consultation or arrange a meeting at one of our local offices throughout the UK.