If you are a Director wanting to close your Limited Company, the appropriate method of closure is entirely dependent on your Company's circumstances. The 3 typical secenarios are:

1. The Company has debts which exceed the value of its assets (it is insolvent)

If your Company is insolvent, you will need to place your Company into Creditors Voluntary Liquidation. This will result in the closure of your Company with the balance of debts left behind in the liquidation with you then able to move on or look at starting a new venture. You can find more information about this process by continuing to read this page below.

2. The company has assets which exceed its debts (it is solvent)

If your Company is solvent then in order to close it in the most tax efficient manner you will need to place it into Members Voluntary Liquidation. You can find out more about the benefits and process of Members Voluntary Liquidation here.

3. The company has no assets or liabilities and is not trading

If you are no longer trading and your Company has no assets or liabilities then you may be able to dissolve the Company. You can do this online through Companies House.

Things to Consider when Looking to Close an Insolvent Company

The are 2 primary things to consider when looking to close an insolvent Limited Company. Firstly, do you want to save all or part of the underlying business or assets? Secondly, how much pressure is the Company under from creditors and how bad are its finances?

If you do want to save some or all of the business or have assets that could be sold to fund a Liquidation then the appropriate course of action is to place the Company into Creditors' Voluntary Liquidation as the process can be started very quickly and gives you more control.

Also, if the Company is under little or no immediate pressure then Voluntary Liquidation allows you to bring a conclusion to matters rather than waiting for creditors to take enforcement action.

Your Duties as Director

Before going into the details of how liquidation works and how it can work for you, it is important to cover off a couple of your key duties as a Director of an insolvent Limited Company.

Amongst your duties is that you must not knowingly continue to trade an insolvent Company (this is known as Wrongful Trading). Failure to adhere to this duty can result in you becoming personally liable for all losses incurred from the time when you first became aware that the Company was insolvent. This has the potential to be a very severe penalty and so it is important that you do not delay dealing with your Company’s current situation. The one current exception to this is that Wrongful Trading has been suspended for Directors whose Companies have only fallen into financial difficulties as a result of COVID-19. The reason behind this exception is to allow Directors sufficient time to see whether it will be possible for their Company to recover from the impact of COVID-19.

...you can read more about the advantages of Creditors Voluntary Liquidation from a Director's perspective here.

You also have a duty to safeguard the assets of the Company and avoid making any transactions that provide excessive benefit to a particular creditor or benefit some creditors at the expense of others. This is understandably a potential minefield when you are focused on doing all you can to make sure your Company survives.

The Role of the Liquidator

Once the Company is in liquidation, it is the job of the Liquidator to sell the Company’s assets for the maximum amount possible. More often than not, the Company assets are of most value to you in a successor business and as such you can make an offer to buy them back without the burden of the Company’s historic debts thus allowing you to save the underlying business. You may also find that the assets seem cheap compared with their original purchase price as their value may have decreased significantly over time.

It is important to note that you cannot close a Company through dissolution if it has outstanding debts and that any creditor can petition the Court to wind up a Company provided they are owed more than £750 resulting in the Company being placed into Compulsory Liquidation. With this in mind, it is clear that any delay in taking action may result in you losing control of your business. It is particularly important to act immediately if you have received a Winding Up Petition as the Company’s bank account will quickly be frozen meaning you will not be able to continue to trade.

Costs to Close a Company & Funding Options

Costs of Closure

A Liquidator charges two types of fee for their services. The first type of fee is a pre-appointment fee which covers the work required to get the Company into liquidation. This fee is often referred to as a statement of affairs fee because it also covers the preparation of the statement of affairs and the report to creditors. This fee is almost always agreed at a set amount and typically ranges from £2,000 plus VAT for a solvent liquidation to £6,000 plus VAT for more complex cases involving significant numbers of creditors, employees or assets.

The second type of fee is a post appointment fee. This fee covers all of the work the Liquidator is required to do after they have been appointed such as realising assets, dealing with employee and creditor claims and reporting on the conduct of the directors. This fee is usually charged on a time cost basis and critically is taken from asset realisations and is only taken where the realisations are sufficient so you will not be expected to contribute to it.

Funding the Closure Process

In order to go ahead and close your Company through voluntary liquidation, the pre-appointment fee will need to be paid. This is usually paid in one of 2 ways:

• If the Company has assets worth more than the agreed fee then the fee will be paid from the proceeds of the sale of the assets.
• If the Company assets are worth less than the agreed fee then the directors will be expected to pay the balance of the fee.

…voluntary liquidation costs typically start at around £2,000 plus VAT.

If the fee is being paid by the Directors then we will always work with you to agree a sensible payment proposal. This may mean agreeing a payment plan over a number of months in order to make the fee more manageable as we appreciate that your finances are likely to be tight if you have had to close your Company. You may also find that you are entitled to claim for redundancy, loss of notice, holiday pay and wage arrears which may offset some or all of the cost and often results in a surplus being paid back to the Director.

The Process to Close your Company

1. Initial Advice

Before you formally decide to close your Company, it is essential that you as a Director are given detailed advice on your responsibilities and all of the potential options available to you so that you can make an educated decision. In order to do this, we will invite you to tell us about the Company and its financial position as you see it. Based on this initial information, we will ask you specific questions about the Company, its finances and your future intentions for the underlying business.

Using the information provided, we will be able to explain all of the options available to you, together with the advantages and disadvantages of each. You will then be able to determine whether the best course of action is to close your Company through Voluntary Liquidation.

2. Formal Engagement

As soon as you have decided that you wish to proceed to close your Company through the voluntary liquidation, we will ask you to confirm various initial items such as the name of the Company and its trading address so that we can complete company searches and set up an electronic file for the Company.

Closing a Company through Creditors Voluntary Liquidation has the following benefits:

• Nominate a Liquidator of your choice who will work with you to ensure the best advice for you and your Company;
• Leave the Company debts behind to be dealt with by the Liquidator;
• Potentially set up a new debt free business and buy back Company assets for their market value;
• Get out of any leases that are no longer required;
• Lay off redundant staff who can then be paid redundancy and outstanding wages by the Redundancy Payments Service;
• Close the Limited Company in a fast and controlled manner enabling you to shut down and move on if you don’t want to continue.

We will then issue you with a Letter of Engagement which confirms that you have instructed us to assist you to close the Company through voluntary liquidation. We will also ask you to provide us with copies of ID documents for the Directors at his stage.

As soon as we have the signed Letter of Engagement back from you we will be able to speak to your creditors, employees and any other agencies who are pressuring you for payment and so take some of the stress away from you.

3. Notices & Information Gathering

Having received the formal instruction to act on your behalf, we will work with you to pull together all of the information needed in order to allow us to write to all of the Company creditors, employees and other relevant parties such as HMRC.

If the Company has assets, we will arrange for a specialist valuation agent to value the assets. This may be done remotely using the Company’s asset register or at a site visit depending on the nature and value of the assets. We will always ask the agent to co-ordinate this direct with you to ensure that the valuation is conducted in a discrete manner without disruption to your business.

4. Setting the Decision Date & Notifying Creditors

As soon as we have sufficient information to enable us to write to creditors, we will set a decision date. This is the date on which the Company will formally be placed into liquidation and is typically set for 2 to 3 weeks from receipt of the engagement letter.

At this stage, we will send you various documents to sign including board minutes, notices to creditors and notices to shareholders. These can be sent for electronic signature and notification is sent out to the creditors as soon as these are returned by you.

5. Drafting the Report to Creditors

In any liquidation, the Directors are required to prepare a statement of affairs for the Company which shows all of the Company’s assets and liabilities, together with a report to creditors which outlines the Company’s recent trading history including information on the nature of its trade, why it ran into financial difficulties and what steps were taken in light of these.

Whilst this is the Directors’ report, in reality we prepare this on your behalf based on the information you have provided to us. We will also schedule a telephone conference or meeting with you in order to go through the trading history to ensure that you have the opportunity to fully communicate this in your own words.

When the report is finalised, we will ask you to formally approve it after which we will send it to creditors. The report will typically be sent out about a week before the decision date.

6. The Decision Date & Appointment of the Liquidator

You formally close your Company when it goes into liquidation at 23:59 on the decision date. The following day we send you a report on the decisions passed together with a record of the decision outcome for you to sign. We will also send you a notice of appointment of the Liquidator confirming that the company has been liquidated. Again, you can approve these by electronic signature and so do not have to attend any meetings on the day. We do however, ask you to ensure you are available for digital sign off though.

The Company is now in liquidation and as such your powers as a Director cease. Upon appointment we will immediately seek to deal with any asset sale whether to a successor entity or by way of third party sale as appropriate. We will also ask you to provide us with the Company books and records so that we can deal with any employee redundancy submissions and any creditor claims as they are received.

You will now be in a position where you can move on as all residual Company matters will be dealt with by us as Liquidator. We simply ask that you assist us with any queries we may have along the way.

How We Help

If you are looking to close your Company it is important to make sure that you get the right advice. This is particularly true if your Company is experiencing financial difficulties as you are likely to be under pressure from creditors and may be beginning to suffer with the stress of the situation. In these circumstances, finding supportive and well structured advice as soon as possible ensures that you have the maximum number of options available and can also go some way to alleviating some of the pressure you are under.

At The Insolvency Helpdesk, we aim to provide you with online access to the information you need to understand the basics of how to close a Limited Company. You can then call us for advice specific to your business circumstances in the knowledge that you will better understand these options and the advice given. We operate throughout the UK and all advice is provided by Licensed Insolvency Practitioners with years of practical experience.

Whatever your situation, taking control of the Company closure process through Creditors’ Voluntary Liquidation will give you more options and greater certainty. We will always work with you to help you achieve the best outcome you can in the most affordable way possible so please call us free on 0800 066 3122