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Closing A Company Down

Closing a company down. Written by John A Waller, Director. reviewed August 4th,2022.

When seeking to close a company down. It depends on whether the company remains ‘Solvent‘ or ‘Insolvent‘.

To consider closure, the directors of the company first require the permission of the company’s shareholders.

Closing a Company Down That Is Insolvent

An insolvent company remains a separate legal entity in law and status in the UK.

To determine if a Limited Company may be considered insolvent. Carry out the following tests

  • Will the company pay its debts as they fall due and payable? If not, the company remains insolvent.
  • Do the liabilities of the company exceed its assets? If so, then insolvent.
  • The company remains subject to legal action if it loses, it can’t pay. Then Insolvent.

Once you have established the company’s insolvency. The directors then need approval from the company’s shareholders to wind the company up. A meeting of shareholders should take place, and once approved. The directors must meet a Licensed Insolvency Practitioner. For further help on ‘what happens to shareholders in liquidation. and arrange a 

Changes in April 2017 regarding how liquidation, convened, came into effect:

The process of closing a limited company since that date remains as follows.

  • Directors of the company

The directors must meet and agree by a majority that the company remains insolvent and must go into liquidation. They then choose a liquidator, which can be anyone, provided they are licensed. No registration is required for this meeting of directors, and directors can attend by telephone.

  • Shareholders of the company

A shareholder meeting requires a special liquidation resolution. It requires approval by 75 per cent of the shareholders, but only the voting shareholders count for 75 per cent.

This meeting will take place with written notice of at least 14 days but can be held immediately with more than 90 per cent consent. Therefore, advantageous for companies with only one or two shareholders can drastically reduce the time required.

  • Company creditors

The main area affected by the new Insolvency Rules changes. 

Companies now only have two options:

1) Convene a virtual meeting of creditors with at least seven days’ notice, giving them details of how to attend (video conference or by telephone) virtually. Usually, the director still comes in on the day of the meeting to meet with the IP, answer any creditor questions, and then sign off all the paperwork.

Bizarrely, if a creditor asks to be in the meeting room, you have to send them away and ask them to telephone in to hear what’s going on. Creditors do not like this, which can increase tensions between the parties involved. However, it remains part of the regulations.

2) A Notice of deemed consent to be sent to the company’s creditors. I am giving at least seven days’ notice. Deemed consent means there isn’t even a chance to attend remotely or by telephone. There is a specific date by which the company remains liquidated if no one objects.

Lately, pre-April 5th, 2017, creditors failed to attend creditors’ meetings, so the deemed consent’ option remains active. However, 10 per cent of creditors by value or number want an actual physical session. They can demand one, and then a meeting must be held. Therefore, this means at least another seven-day delay in calling a physical meeting.

Notice to creditors may now be given by email speeding up the process, though post remains an option if creditors hold no email addresses.

A shareholder’s meeting and notification of the company’s creditors remain on the same day in succession. It allows a company to commence liquidation within eight working days, subject to readily available information and the director’s cooperation.

For further reading, please view ‘what is creditors voluntary liquidation’?

Closing A Company Down – Report and statement of affairs

A significant additional change under the new rules requires a report sent to all creditors before the virtual meeting or regarded as consent, which includes 

  • a company history, 
  • a statement listing assets and liabilities, and
  • Other legal information.

The statement of affairs part still requires physical posting. Other correspondence, though, may be by email, portal access or land mail.

closing a limited company

Closing a Company Down That Is Solvent

Strike off your limited company from the Register at Companies 

You can dissolve your company by deleting it from the company register, but only if:

  • Not traded in the last three months;
  • Not under threat of liquidation;
  • No name change in the past three months;
  • It does not have any outstanding agreements with creditors of the company, like a Company Voluntary Arrangement.

If your company fails to satisfy these requirements, then you’ll have to liquidate your limited company voluntarily.

When you apply to ‘strike off’ your company, you have specific responsibilities to correctly close down your business.

Close down your company

Before seeking to strike off your limited company, you remain required to close a solvent company legally. Therefore, directors must:

  • Advise HMRC and the company creditors of your intentions, while ensuring everyone remains paid in full;
  • Make staff redundant correctly;
  • Realise the assets of the business, and then collect accounts due to the company.

Who do you need to inform about your intentions?

Fill in an application to strike-off and send a copy within seven days to those who might be affected. 

This involves:

  • Members of the company (usually the shareholders);
  • Creditors of the company;
  • Company employees
  • Pension fund managers or trustees of employee pensions;
  • Those directors who didn’t sign the application form.

Employees

Company staff require directors to:

  • Follow the rules if any staff are made redundant;
  • Ensure final wages or salary remain paid.

PAYE and National Insurance (NI)

Advise HMRC, the company ceased trading and stopped employing people.

Business assets

You should ensure all business assets are shared between the shareholders before striking the company of the register, at ‘company house’.

Note: Assets not distributed become the property of the Crown. If you wish to reclaim assets after striking the company off the register at companies house, they must restore the company to retrieve ownership.

The Companies Final accounts

You must submit the final annual accounts and a company tax return to HMRC.

You remain not required to file final accounts for the company at Companies House.

  1. Finalise final accounts and the company tax return.
  2. File your accounts and company tax return, advising these remain the final trading accounts for a soon to be dissolved limited company.
  3. Pay HMRC liabilities in full.

Closing a Company Down Using A Members Voluntary Liquidation (MVL).

Members Voluntary Liquidation MVL, a formal process used to secure a solvent company closure. To carry out the procedure, licensed insolvency practitioners help the company convert the company’s assets into cash. Once realised, funds received from this are then equally distributed to shareholders of the company. Company Directors of the company may then claim ‘Entrepreneurs’ Relief’ (ER) subject to their £25k or more, which remains taxed on shareholders using capital gains tax in place of dividends. To claim ER successfully, the company directors must declare that the company can pay its debts in full and the associated cost of the liquidation. 

Business Asset Disposal Relief : formerly known as Entrepreneurs’ Relief before 6 April 2020.

How much tax do I pay if I shut my limited company?

Liquidating your limited company using members voluntary liquidated managed by a licensed insolvency practitioner, a tax-efficient way to conclude a solvent company with assets.

Therefore, using an MVL allows you to access your reserves by the liquidator, creating a distribution once all assets remain realised as capital rather than income.

Therefore, the money remains taxed as a capital gain at either 19% or 28%. They may then take advantage of ‘Entrepreneurs Relief’.

Making your limited company dormant

If your limited company fails to perform, consider ceasing trading while either the market improves or you re-evaluate the operational side of your business. By placing your company on hold and ceasing any form of trade, you may still retain the company for use in the future. You though still have it registered at the company house and still need to file documents.

Retaining a company allows the retention of a name for later use. Often sub-contractors set up companies purely for themselves, and if they become employed, they cease trading with the limited company, but still retain ownership subject to solvency.

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