Closing a company when only one director wants to

Many people run companies with other directors to share the initial setup costs and bring additional skill sets to the venture. However, with multiple directors, there can be differing views about working methods, the direction of the business and whether they want to continue running it at all.

If you want to retire, try something new, or simply no longer want to be a part of the company, closing it could be an option. The directors can then go their separate ways and pursue new ventures. However, it’s not always so simple. If one director wants to close a company but the others would like to continue running it, that brings some additional complexity.

In this quick guide, we explain what you can do if one director wants to close a company but the others don’t, and outline your options for exiting the business.

Ordinarily, there are four main ways to close a limited company: two if the company can pay all its debts (it’s solvent), and two if the business is insolvent. 

Closing a solvent business

• Voluntary Strike Off

If your company has no debts and less than £25,000 of profit or assets to distribute, using the Voluntary Strike Off procedure will usually be the simplest way to close it.  

To do that, you need the majority of the directors to sign the Strike Off application. If there are three directors, at least two must sign; if there are two directors, both must sign. You must also notify the shareholders, who may object to the Strike Off. 

• Therefore, Voluntary Strike Off is not an option if you are one of two or more directors and the others disagree with the closure. 
• Members’ Voluntary Liquidation (MVL)

If your company has no debts but significant profits to distribute to the shareholders, a Members’ Voluntary Liquidation is likely to be the most tax-efficient way to close it. To proceed with an MVL, at least 75% of shareholders (by share value) must pass a special resolution.

• Therefore, if the other directors or shareholders don’t want to close the business, you will only be able to initiate an MVL if you own 75% of the company’s shares.  

Closing an insolvent business

• Creditors’ Voluntary Liquidation (CVL)

If the company is insolvent (it cannot afford to pay all its debts), you can close it voluntarily via a Creditors’ Voluntary Liquidation. As a director, you can initiate a CVL by calling a board meeting, but as with the MVL, you will need 75% of the shareholders (by share value) to approve it. 

• Once again, if you are the only director who wants to close the company, you will only be able to do so if you have the support of the shareholders or own at least 75% of the company’s shares. 
• Compulsory Liquidation

Compulsory Liquidation is a company closure process initiated by the company’s creditors (the parties it owes money to) rather than the directors. They issue a court petition called a Winding Up Petition, and the court then decides whether to force the company into liquidation.

• In theory, Compulsory Liquidation could bring an end to a company when only one director wants to close it. However, it’s worth reiterating that only an external creditor can initiate the process. Compulsory Liquidation also carries financial and legal risks for directors, particularly if there is evidence of misconduct.

If you are one of two or more directors and you do not own at least 75% (by value) of the shares, you cannot close the company voluntarily if the other directors and shareholders don’t want to. So, what can you do? These are your main options.

Resign and move on

Resigning from a limited company can be relatively straightforward. However, it is a formal process, so you will need to handle it properly. You should consult the company’s articles of association and shareholders’ agreement to determine the procedure and notice period.

You can resign by sending a formal resignation letter to the board of directors. It is the company’s responsibility to notify Companies House. However, you should follow up and check the official Companies House register to ensure your resignation has been properly recorded.

The process of resigning becomes more complicated if you have signed a personal guarantee for company borrowing. In this case, you should review the terms of the guarantee and explore whether the lender will agree to release you from it before you resign. Another option may be to refinance the debt to remove yourself as a guarantor.

A director can also be reluctant to resign when they are in dispute with a fellow director, particularly if they are also a shareholder. You may feel that you are leaving the company or its assets open to mismanagement, or that outstanding liabilities will not be dealt with properly. 

Negotiate a share sale

If you are a company director and shareholder, you’ll also need to think about what you’ll do with the shares. You may be able to sell them to the remaining shareholders or to a third party, but only if it is permitted under the company’s articles of association.

If selling your shares isn’t an option, or you wish to retain them, you can still choose to resign as a director. However, doing so while keeping your shares may leave you in a difficult position, particularly if you have unresolved disputes with the remaining directors or you disagree with the company’s direction.  

If two directors (or shareholders) with equal ownership and voting rights cannot agree on key decisions, it can create a deadlock. In a ‘deadlocked dispute’, there is no additional director to vote on a resolution. That leads to a stalemate that can damage the business, its operations and its employees. 

If neither party is willing to compromise, alternative dispute resolution methods, such as mediation and arbitration, can be successful. It may also be possible to arrange a mutually acceptable buy-out arrangement, where one party purchases the other’s shares. If there’s still no resolution, a just and equitable Winding Up Petition could be an effective last resort.

Petitioning the court on just and equitable grounds makes the court responsible for deciding whether to close the company. It will assess the situation and determine whether there are any options other than winding it up. If it decides that the trust has gone between the two parties and there’s no viable alternative, it can place the company into liquidation. 

While this is not commonly used in practice, it can be an effective way to break the internal deadlock when the directors want different things and the relationship has broken down.

If you are the only director or shareholder who wants to close a company, we can help you consider your options. Whether it’s through resignation, negotiation, legal action or one of the company closure procedures, there’s always a solution. 

Please get in touch for a free consultation or arrange a meeting at your nearest office with our company closure experts. We will assess your circumstances, explain your options and guide you seamlessly through the most appropriate route forward.