What is the process of closing a company?

If you decide it’s the time to close a limited company, the process you must follow is determined by the closure method you use. There are three main ways of closing a limited company:

• Strike Off (also called Company Dissolution)
• Members’ Voluntary Liquidation (MVL)
• Creditors’ Voluntary Liquidation (CVL)

The most appropriate closure method depends on the financial position of your company. Here we outline the process for each and the steps you’ll need to take as a company director. 

If your company can pay all its debts and has valuable assets or profits to return to the shareholders, a Members’ Voluntary Liquidation is usually the most tax-efficient way to close it. 

In an MVL, you must appoint a licensed Insolvency Practitioner to act as the liquidator and close the company on your behalf. That makes the process more expensive than Strike Off, as you have to pay their professional fees.  

However, the benefit is that all the profits from the company are subject to Capital Gains Tax rather than Income Tax. You may also be eligible for Business Asset Disposal Relief, which reduces the rate of CGT you pay. 

How do you close a company via Members’ Voluntary Liquidation?

An MVL is common when a sole director wants to retire or the company no longer serves a purpose. The process is as follows:

• Appoint a licensed Insolvency Practitioner to act as the liquidator.
• Sign a Declaration of Solvency to confirm the company can pay all its debts within 12 months and file the declaration with Companies House.
• Hold a shareholders’ meeting within five weeks of signing the Declaration of Solvency to pass a resolution to wind up the company. 75% of the shareholders must agree to the liquidation for it to go ahead.
• The appointed liquidator will put a notice in the Gazette within 14 days of passing the resolution to inform interested parties that the company is being liquidated. 
• The liquidator will inform any creditors (parties the company owes money to) within 28 days of the resolution.  
• The liquidator will sell the company’s assets and use the proceeds to repay any creditors before distributing the rest among the shareholders. 
• The liquidator will file a Corporation Tax return and final accounts before removing the company from the official register.

As long as you act according to your legal duties as a director and there’s no evidence of any wrongdoing during the liquidation process, there will be no restrictions on your ability to start a new company or be the director of an existing business after the liquidation. 

If your company is insolvent (it cannot pay its debts), you can close it voluntarily via a Creditors’ Voluntary Liquidation. The aim of the procedure is to deal with the debts properly and maximise the returns for the company’s creditors while reducing the risk of adverse financial and legal consequences for the directors. 

As long as the directors act according to their legal duties, any debts the company cannot pay will be written off. The directors will not be personally liable unless they have signed a personal guarantee.   

How do you close a company via Creditors’ Voluntary Liquidation?

A Creditors’ Voluntary Liquidation is a formal procedure, so you must appoint a licensed Insolvency Practitioner to implement it on your behalf. 

Here’s how it works:

• Contact an Insolvency Practitioner (IP) if you suspect your company is insolvent. They will assess your finances and discuss your options. 
• If liquidation is your best option, your IP will help you prepare a Statement of Affairs. It will include details of the company’s financial position, assets and liabilities.
• You must then call a shareholders’ meeting to pass a resolution to liquidate the company. The liquidation can proceed if 75% of the shareholders vote to wind it up.
• A creditors’ meeting is generally held to inform the creditors about the company’s financial situation and provide them with the Statement of Affairs. Creditors can also vote to retain the Insolvency Practitioner (IP) you have appointed or choose another. 
• The appointed IP will take control of the company and identify, value and sell company assets for the benefit of its creditors. They will also invite creditors to submit claims for the money they’re owed. 
• The liquidator will use the proceeds from the sale of assets to repay the creditors in a predetermined order.    

• Once the liquidator has repaid the creditors as much as possible, they will remove the company from the official register and any outstanding debts will be written off.

As part of the Creditors’ Voluntary Liquidation process, the liquidator will also investigate the reasons for the company’s failure and the actions of its directors. If they find any unlawful or wrongful conduct, directors can be fined, made personally liable for company debts or be disqualified from acting as a director for up to 15 years. 

At Company Closure, we have a nationwide team of licensed Insolvency Practitioners who can help you close your limited company and protect your interests. We will discuss your circumstances, explain your company closure options and guide you through the process from start to finish. Please get in touch for a free assessment or arrange a meeting at one of our offices throughout the UK.