Can I close a limited company with debts and start again?
Can I close a limited company with debt and start again? Yes!
But strict rules must be followed to avoid fraudulent means by directors, as the result risks serious consequences.
This is to stop company directors from starting a new company to avoid debt. A company created from the ashes of another company with the same assets and directors is called a Phoenix company.
If you’re the director of a company that’s unable to trade due to debt, it may no longer service? Then closing might be the best option, allowing a new business to be formed free from debt.
Which liquidation should i choose?
When a company is insolvent, two options exist for a limited company to liquidate:
- A voluntary decision:
- Creditor Voluntary Liquidation (CVL)
- An Involuntary
Creditors Voluntary liquidation CVL
Having the ability to choose a Creditors Voluntary liquidation permits directors to voluntarily terminate trading and select a licensed Insolvency Practitioner to act as liquidator of the company liquidator to legally realise the assets of the company to distribute funds then to the creditors.
Before they liquidate the business, the insolvency practitioner will evaluate whether they should convert the business into a CVL. If agrees that a CVL is the correct procedure to use then a report will be drawn up explaining the company’s financial situation, and then circulated to all known creditors.
Once the report’s been sent to creditors, the company starts liquidation within 14 days. During this time, the liquidator will deal with creditors, employees, sell assets, and issue reports. The funds will pay the liquidation costs, and then be distributed to creditors if a balance remains.
As part of the liquidation process, the liquidator is required to investigate the conduct of the directors.
Finally, any debt not paid from realisations of assets of the company is legally written off.
However, should the report on the directors prove any wrong doing, then the directors face:
- personally being held liable for the company’s debt;
- A directors disqualification up to 15 years;
- a fine;
- A custodial sentence.
Having your company wound up by a Compulsory Liquidation is usually involuntary and instigated by a creditor of the company, such as HMRC.