Resource 2

Closing a company down

Administration

Closing A Limited Company

You usually need to have the agreement of your company’s directors and shareholders to close a limited company.

The way you close the company depends on whether it can pay its bills or not.

The Company Can Pay Its Bills (‘solvent’)

You can either:

Striking off the company is usually the cheapest way to close it (currently costs £8/£10)

The Company Can’t Pay Its Bills (‘insolvent’)

When your company is insolvent, the interests of the people your company owes money to (its creditors) legally come before those of the directors or shareholders.

You must use the creditors’ voluntary liquidation process.

https://www.gov.uk/liquidate-your-company/creditors-voluntary-liquidation

Your company might be forced into compulsory liquidation if you don’t pay creditors.

You may be able to avoid liquidation by applying for a Company Voluntary Arrangement.

If your limited company is insolvent, it can use a Company Voluntary Arrangement (CVA) to pay creditors over a fixed period. If creditors agree, your limited company can continue trading.

If you’re a sole trader or self-employed, apply for an Individual Voluntary Arrangement (IVA).

How To Apply

A company or limited liability partnership (LLP) can apply if all the directors or members agree.

You can only get a CVA through an insolvency practitioner. They will charge you to apply for the CVA and also to administer it.

What Happens Next

The insolvency practitioner will work out an ‘arrangement’ covering the amount of debt you can pay and a payment schedule. They must do this within a month of being appointed.

They’ll write to creditors about the arrangement and invite them to vote on it.

To get a CVA, it must be approved by creditors who are owed at least 75% of the debt.

You’ll need to make the scheduled payments to creditors through the insolvency practitioner until these are paid off.

If you don’t get the 75% vote from the creditors, your company could face voluntary liquidation.

If you don’t meet the agreed payment schedule, any of your creditors can apply to wind up your business.

If The Company Doesn’t Have A Director

You must appoint a new director if your company doesn’t have one, for example if a sole director has died.

Companies House will eventually strike off a company that doesn’t have a director but this can make it more difficult to manage any company assets.

Shareholders must agree to appoint a new director and may need to vote on it.

If a sole director has died and there aren’t any shareholders the executor of the estate can appoint a new director, as long as the company’s articles allow it.

The new director can close the company.

Your company still needs to pay corporation tax and file a tax return even if there’s no director.

Let The Company Become Dormant

You don’t have to close your company if it’s no longer trading. You can let it become ‘dormant’ for tax as long as it’s not:

  • Carrying on business activity
  • Trading
  • Receiving income

Your company will still be registered at Companies House.

You must still send your annual accounts and confirmation statement(previously annual return) to Companies House.

You can keep a limited company dormant for as long as you want.