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Can you close a limited company with debt?

Can you close a limited company with debt? Yes, you can.

Great care, though, should be taken when considering dissolving a company in debt.

What Happens to Company Debts when Dissolved?

If your limited company has creditors unpaid? Often directors, therefore, believe striking off the company, resolves the situation.

However, being removed from the Companies House Register does not allow avoiding repayment to the companies creditors, indeed attempting to may have dire circumstances. 

Dissolve: the definition – Striking off a Limited Company?

It remains a cost-effective process to close a limited company down by striking it from the Register at Companies House. It will help if you understand the principles for striking off.

So, the company, therefore, needs to prove it is

  • Solvent; 
  • Ceased trading and;
  • No outstanding legal action.   

Striking off a limited company is simple. However, the rules applied are not as simple. You may not then use the process to close a company down with debts. 

Dissolving a Limited Company with unpaid Debts

Insolvent companies should never, therefore, attempt to use the strike-off process, to then close a company down. Alternatively, the company’s commitments require repaying; therefore, before the company may try to strike off. Also, all legal action if any, along with any creditor action, involves settlement.

If a business is in an insolvency process, then it may not attempt to strike the company off.

If company debts remain, then attempting to dissolve an insolvent company will likely be either rejected or challenged by HMRC (If crown debt). Therefore, use a Creditors Voluntary Liquidation if this is the case. 


Insolvency is when you are unable to pay your creditors as and when they fall due. The term refers to an individual and a corporate entity such as a limited company.

Two tests exist to determine Insolvency:

  • Cash-flow insolvency and

  • Balance-sheet insolvency. 

What Happens if you try to Strike Off a Limited Company With Debts?

To be struck off, therefore, requires a solvent company. However, should the company commence to strike off the company, notwithstanding debts, unpaid then:-

  • Creditors of the company object to striking off application.  
  • Company Creditors may apply to reinstate the company.

Dissolution benefits

  • A fast process to remove a dormant company from the registrar at Companies House;
  • little if no cost as with a Liquidation;
  • No examination required into former company directors conduct.

Dissolution downside

  • Companies need the approval of its creditors to then apply for a dissolution;
  • Any shareholder, creditor or liquidator can apply to revive the company for up to 20 years after dissolution.
  • the company faces reinstatement if:
    • Inadequate notice to the companies creditors;
    • the dissolved company traded within the last three months;
    • an act of fraud is proven highlighted along with other actions by the former directors’ such misfeasance associated with the company during its dissolution.
  • Dissolving a company requires careful actions while disposing of assets of the company. Directors then need to tread carefully paying creditors. Failure to do so opens the dissolved company to reinstatement and investigation. 

Suppose you require clarification on an application to dissolve your company. Please book a VIRTUAL meeting safe and private or telephone our freephone on 0800 612 5448.

Downsides against liquidation

  • Dissolution differs from a formal liquidation process. When commencing to dissolve a limited company, directors must ensure payment of creditors in full. Other than regular trade creditors. Attention needs to be too such as Hire Purchase agreements, known company contingent liabilities, leases on any vehicles and property leases cease. If not? Directors of the company should consider a formal closure by a licensed insolvency Practitioner. The process includes a Company administration, Company Voluntary Arrangement or a Creditors Voluntary Liquidation. The financial status of the company, together with its viability along with future intent will in the main dictate the process once the directors make the voluntary choice.
  • From a creditors’ perspective, dissolution avoids a formal investigation into the director’s conduct. However, transactions considered a preference or attempting or have defrauded the companies creditors or basic fraud committed. Dissolution does not afford an investigation into past conduct. If the creditors believe that such transactions may have occurred, they can, of course, refuse permission and the company will either liquidate voluntarily or compulsorily.

Can HMRC Pursue a Dissolved Company?


HMRC can seek out a dissolved company, especially when suspicious or having been informed of directors, evading duty and tax.

HMRC investigations may then be still achievable up to 20 years.

How do you Close Down a Company with Debts? 

Closing down a company, therefore, with unpaid debts requires a creditors’ voluntary liquidation (CVL). It would help if you then appointed a Licensed Insolvency Practitioner who will handle the liquidation. They will nominate independent agents to value and sell company assets. Then the liquidator will distribute the liquidation proceeds out to creditors who have filed a legitimate claim in liquidation.

If the limited company has no assets to repay creditors, then an administrative dissolution can be used. Therefore, an insolvency practitioner helps the director of the company to resolve the limited company’s debts before closure.

Directors Can Be Held Personally Liable

There have been instances where directors have successfully closed down their businesses by striking off as a deliberate attempt to avoid repaying their creditors. However, in the vast majority of cases, the creditors discover what has happened and apply for the company to be reinstated. That brings additional risks for the company directors as their conduct is likely to be investigated, potentially leading to personal liability for company debts and/or director disqualification for a period of up to 15 years. Please ensure you understand your director’s duties and responsibilities.

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Insolvency Practitioners Association CHMRCD
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