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How to Close Down an Insolvent Limited Company?

“Dissolving” or closing a limited company without the robust support of licensed insolvency practitioners by your side, is risky in certain circumstances.

Please note, legally, it remains possible to close your limited company yourself. BUT! Get it wrong, and not clear your limited company debts? You face trouble.

Often company directors ask, can they close a limited company with debt?

Yes, you can, but the process has legal direction to be authorised.

Voluntary liquidation is like an insurance policy, providing closure to issues popping up later in life.

My Limited Company Has Debt It Can’t Pay.

If yes! Then please contact the team at HBG Advisory before making it public. However, as a company director, you remain required to protect the interest of the creditor of your company, and not increase the amount owed if unable to pay.

Please contact us on 0330 056 3120 (available 7 days a week, 8 am to 8 pm in total confidence) before matters get out of hand. ‘Our first meeting remains free and without commitment’.

The way to close a limited company for good

It is imperative when you close a limited company down. You carry out the procedure legally. Directors have no legal capacity to act as liquidator – a process reserved for a licensed insolvency practitioner, as found in the team at HBG Advisory.

Should you opt to close your limited company, you’re required to apply to Companies House to have it voluntarily wound up (closed) and struck off the register. 

To do so, the registrar at Companies House may only strike companies off, providing:

  • The company ceased trading over three months ago;
  • All debts repaid, and none remain pending;
  • Not under the threat of a winding-up order;
  • The company name has not changed in the past three months;
  • No creditor agreements formally in place to repay the outstanding debt.

Failure of the above requires a formal liquidation.

DSO1 Form 

Companies House will provide you with a DS01 form to fill in and submit with Companies House if you meet these conditions.

Closing a Limited Company and the Law in England & Wales

The process of ‘closing a limited company‘ remains essential if you do not want to stay exposed to creditor, contractual or HMRC claims in the future.

UK company law remains however complex, particularly in dealing with corporate insolvency.

The law relating to how a limited company has two tracks. It all depends on whether your limited company is:

  • Insolvent;
  • Solvent.
    • Limited companies wishing to close a company tax-efficiently when having assets of £25,000 or more.

A company hasn’t traded in at least three months; a process known as strike off or dissolution may be applicable. Therefore, you can notify Company’s House that you wish to remove it from their official register. If you satisfy the criteria, this is the most inexpensive way to close a limited company.

The Cost to Close a Limited Company?

Submitting a DS01 form to Companies House requires a £10 filing fee.

How do I inform HMRC that I intend to close my limited company? –

  • Complete and file your company’s final accounts to:
    • HMRC;
    • Close HMRC corporation tax account;
  • Advise HMRC of your ceasing to act as an employer while forwarding:
    • Final P35 Employer’s Annual Return; 
    • Paid all PAYE and National Insurance contributions;
  • If registered for VAT. Advise HMRC of your intent to deregister;
  • Directors must ensure all tax returns are submitted to HMRC.

How do I close a solvent limited company using a Members’ Voluntary Liquidation (MVL)?

If your company is solvent, though fails on one of the points above? Directors may liquidate their company using a member’s voluntary liquidation, relevant when you wish to:

  • Resigning in a family business with no successor;
  • Retire as a director and close your business down, paying all its debts in full;

• Seeking a new career;

• Wanting to realise cash and assets tax efficiently from the limited company.

Closing a solvent limited company can involve capital gains and tax liabilities. However, an MVL did offer a tax benefit known as Entrepreneurs Relief. It renamed itself ‘Business Asset Disposal Relief‘ on April 6th, 2020.

How do I close a company, Dormant or Never Traded?

If the company is dormant or never traded, closing the company should be straightforward. Once the directors have agreed, apply Strike Off using form DS01. Then, once advertised in the London Gazette, a three-month objection period has passed. The limited company is then struck off the register and ceases as a separate legal entity.

Does Closing a Limited Company affect a Director Personally?

Not usually.

As long as the director has not misbehaved? Liquidation usually has no impact on future business enterprises.

How Much Does it Cost?

The process of striking off a company via Companies House costs £10

However, costs increase, as does the complexity of closing a limited company. Assets require realising and debts confirming and paying. Both insolvent and solvent liquidations need the services of an insolvency practitioner, as found on the team at HBG Advisory. Each liquidation is different, so fixed fees are challenging to predict. However, IPs usually charge fees by their time and may equate to:

  • Solvent Liquidations start from around £1000;
  • Insolvent liquidations between £2500 and £6000.

Can I Close a Company and Start with a New One?

The answer is you can start another one, provided all the companies’ requirements remain dealt with, and you are not subject to censure or a directors ban.

HOWEVER, HMRC wants to prevent a Phoenix. The Phoenix of a company in debt, especially to HMRC, involves a liquidated company rising from the ashes, possibly operating with a similar name with a new clean limited company platform, debt-free.

Section 216 of the Insolvency Act prohibits using a Phoenix company. Therefore, directors must tread carefully, especially when reusing a company name without robust legal advice.

The formal way to close a Limited Company With Debts

Seeking to close a limited company when owing money requires an insolvency process, known as a creditors’ voluntary liquidation (CVL). A company director of a company can propose a creditors’ voluntary liquidation if:

• It is unable to pay its debts as and when they fall due;

• Enough shareholders (75 per cent by the value of shares) agree to get the shareholder’s agreement to cease trading and liquidate the company. You need to call a shareholder’s meeting and vote. If the outcome has 75 per cent approval (by the share value), then you:

  •  may choose to appoint a licensed insolvency practitioner of your choice to commence the process of liquidating the company;
  • • File a resolution to Companies House within fifteen days;

• Advertise in the Gazette the resolution to hold a creditors’ meeting of the company within fourteen days of passing the resolution. Creditors, however, must be given seven days’ notice of the meeting and advertised in the Gazette. 

Directors then prepare a ‘Statement of Affairs’ (SofA) summarising its financial state, presenting it to the company’s creditors at the meeting;

The directors provide a copy to the liquidator and form part of the rationale for the liquidation happening;

Once the liquidator has realised all the company assets, the company’s creditors repaid in order of priority. Then, the appointed liquidator applies to strike the company off the registrar three months after the final meeting.

I am attempting to strike off a limited company with debt to creditors of the company and HMRC.

An Objection to companies house striking off will typically be issued by HMRC when you strike off a company with outstanding debts due to creditors or HMRC. This is a formal objection, stopping you from closing the company until paying the company’s debts. In addition, if you are unable to resolve your tax arrears, there is the possibility that they will compulsorily liquidate your company. However, HMRC will carry this action out even if the debt is small, to give an example to non-paying tax entities.

HMRC of other creditors petitioning to wind the company, placing it into Compulsory Liquidation?

Should your company be in a situation where it cannot pay its debts as and when they fall due? Then, your company’s creditors may apply to a court to issue an application for a winding-up petition. If successful, forcing the company into liquidation, thereby liquidating the company’s assets by the appointed liquidator to repay creditors.

What is the Time Scale to Close a Limited Company?

Assuming the company is being struck off the register at Companies House, expect a time frame of around three months before receiving confirmation.

During the COVID-19 pandemic, the process has slowed down. However, the faster you act and deliver documents on time, the sooner the liquidation may conclude.

Please note, though, if the company has assets like land buildings or complex machinery. Timescales will increase to closure.

Can HMRC pursue a dissolved business?

Yes.

Should a limited company be struck off the register while debts remain outstanding? Then, the company’s creditors, including HMRC, object by using an Objection to Company Strike Off Letter. Therefore, stopping the process. 

However, all is not what it may seem, despite dissolving the company. HMRC tracks company dissolutions. If found, they have not concluded the affairs of the company with HMRC. Then they may restore the company to the register to either demand payment or finish the tax file formally, and even prosecute the directors if found guilty of impropriety.

By striking off a company at the company’s house, the company cannot therefore pay debts owed. Instead, they must be dealt with legitimately before the process begins.

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