Which closure process is best for your company? (Guest post for aavot.co.uk)

How you close a limited company will partly depend on its circumstances. How you wish to proceed as director may have some bearing on what happens to the company, but its solvent position, whether it can afford to repay its liabilities when they fall due, will have the most influence on how it closes.

Closure by strike-off

You can close your company by striking it off via dissolution, which removes it from the Register of Companies at Companies House. This ends the company’s legal existence and allows you to walk away and start afresh.

Alternatively, you can have the company go dormant if you wish to reuse it again later.

Dissolution can be the default choice for directors, but the company must meet the following criteria before applying:

In the three months leading up to the application to dissolve, the company cannot have:

• Traded.
• Changed its name.
• Engaged in any legal or insolvency procedures or have an administrator or receiver appointed.
• A non-finalised pension scheme.
• Be subject to disqualification or prosecution as a director.

Most importantly, a company must be solvent to undergo a dissolution. While you can attempt to dissolve a company while it is insolvent, the creditors are likely to object. Even if you succeed in dissolving the company, the creditors can have it restored.

Closure by solvent liquidation

If you feel that your company has come to the end of its useful life, if you wish to retire without a successor, or the company has more than £25,000 worth of assets, a solvent Members Voluntary Liquidation (MVL) may be a viable option. Allowing you to settle all liabilities, be more tax-efficient than dissolution, and be a lot faster. As it is a formal insolvency process, it must be carried out by a licensed and regulated insolvency practitioner.

Closure through insolvent liquidation

You should always be aware of your company’s solvent position, and whether it has debts that it cannot pay. If this is the case, you need to act in your creditors’ best interests. If you find your company in such a situation, you should speak to a licensed and regulated insolvency practitioner who can discuss your options. These options could include repaying the company’s debts in affordable instalments or restructuring the company back to a profitable state.

However, if recovery isn’t feasible, which could be due to the levels of debt or mounting creditor pressure, among other reasons, the insolvency practitioner may recommend that the company close through a Creditors Voluntary Liquidation (CVL). This is a formal insolvency process that closes the company in an orderly manner, with the unsecured debts dying with the company.

If you’ve acted in the company’s best interests leading up to and during the period of insolvency, you should be able to walk away from the company once it is closed and start afresh, potentially in a new limited company.

See also: Restoring Heritage Homes with Traditional Lime Techniques in Cheltenham

What is your company’s best option?

The best option for your company will heavily depend on its individual circumstances, but to summarise:

• A dissolution is likely to be the best option for a company with a low amount of assets, and it fulfils the criteria required to dissolve.
• Solvent Members Voluntary Liquidations may be more suitable if the company has more than £25,000 in cash and assets, and the process would be more tax-efficient than dissolution.
• Insolvent Creditors Voluntary Liquidations are for companies unable to repay their liabilities as and when they’re due. If your company is insolvent, you should contact a licensed and regulated insolvency practitioner as soon as you become aware of the situation. They can offer you guidance on what to do next and which insolvency process would be the best way forward.