Dissolving your limited company rather than liquidating it?

Written by

John A Waller

Director

Originated: May 6th,2021

Unfortunately, in business, as in life, things don’t always go according to plan.

No one sets up a company with the intention of having it eventually fail. However, regrettably, businesses do fail. 

It could be the case that the issue lies with mismanagement. However, there are often external forces at work and variables outside of those managing it. 

If you manage your own company and have found matters challenging lately, you’re not alone. Sometimes, despite all the hard work and determination, and whatever the reasons behind your business woes, wind the company down, draw a line under it and shut up shop for good.

So, if you’re considering how to dissolve a company, please read below for further information.

Five key considerations when deciding to dissolve a company:

1. Dissolution versus liquidation

If you decide it’s time to close your business, you have two main options ahead of you.

You can:

  • Enter a creditors’ voluntary liquidation, which involves appointing a licensed insolvency practitioner to step in and distribute your assets amongst your creditors, or 
  • You can apply to dissolve the business and have the company’s existence struck off from Companies House.

2. When is dissolution the best option?

Dissolving a company is only the best option to take when the business is no longer performing a purpose; it is therefore not recommended as a solution for failing businesses financially.

If a creditor can prove you’ve failed to inform your creditors about your dissolution application, you could be banned from future directorships or even prosecuted.

3. What about if I owe money?

If your limited company has outstanding debt? Then there’s little likelihood your application for dissolution will be approved. Even if your application does slip through the net, though, it doesn’t mean that your company is no longer forever.

Suppose a creditor contacts the court and alerts them to an outstanding payment or series of payments. In that case, they have the power to resurrect the business effectively – and have 20 years to make such an application to the court! 

If this happens, the company will be restored at Companies House, and the creditor will be free to restart debt recovery proceedings. However, if you formally liquidate your business, it’s closed down for good with no argument.

Owing money to HMRC and dissolving a limited is not legal nor safe. For further reading please view ‘can HMRC pursue a dissolved company?’

4. Dissolution and director redundancy

If you dissolve your business, you won’t be eligible to claim director redundancy – but if you enter into a CVL, you will be. The current average for such a claim is around £10,000, and director redundancy can be a valuable lifeline during this stressful period.

Plus, not only could the redundancy money help pay towards liquidation costs, but it could also give you an additional financial boost whilst you plan your next steps.

5. So which route is suitable for me?

The critical factor that should determine whether you choose to dissolve your company or liquidate it is your level of debt. If you can afford to pay off all your creditors before you cease trading, and you have no material assets to distribute, then dissolution could be the best option for you.

However, if you can’t handle your financial commitments and want to make sure everything is tied up properly, then voluntary liquidation will likely be the correct route.

How HBG Advisory can help

If you are contemplating closing your limited company, but unsure which route is appropriate for you, our accessible, experienced team will be happy to answer all your questions.

As expert insolvency practitioners with over 20 years of experience, we can advise you on the available solutions like:

So, if you require to take the strain and stress out of the process of closing down your business and want to make sure everything works as smoothly as possible, please speak to the team at HBG advisory today for robust, understandable advice.

Dissolving your limited company rather than liquidating it? Question often asked

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