There are many reasons why you would not want your limited company anymore – perhaps things didn’t go to plan and you need to start again or find a ‘proper job’ or perhaps they did go to plan and you want to cash in and retire!
Strike Off
When can you do this?
In very simple terms you can close your limited company by getting it struck off if it:
- hasn’t traded or sold off any stock in the last 3 months
- hasn’t changed names in the last 3 months
- isn’t threatened with liquidation
- has no agreements with creditors, eg a Company Voluntary Arrangement (CVA)
Strike off is the quickest and simplest route to closure if the company has ceased trading and has no debts.
Before applying to strike off your limited company, you must close it down legally. This involves:
- announcing your plans to interested parties and HM Revenue and Customs (HMRC). If you owe monies to HMRC they will most likely object to your application to strike off. If you don’t owe any money you might need to close down your payroll scheme and de-register from VAT.
- making sure your employees are treated according to the rules, you may need to make them redundant and pay redundancy
- dealing with your business assets and accounts – close bank accounts, dispose of assets and transfer any domain names
- if you make a gain on any assets taken out of the business prior to strike off – you may have personal gains tax to pay
Assets of any material value should be independently valued to ensure they are disposed of at current market or fair value so the company directors are not seen as asset stripping. Remember the company is a separate legal entity in its own right so the assets belong to the company – not to you.
When your company is dissolved, all the remaining assets including any bank balances will pass to the Crown.
The £10 fee to close a company cannot be paid by cheque from the company being closed down.
You would make an application to strike off and send a copy within 7 days to anyone who could be affected. This might include:
- members (usually the shareholders)
- creditors
- employees
- managers or trustees of any employee pension fund
- any directors who didn’t sign the application form
Companies House will write to you once they have received your application to strike off to confirm if they accept your application or not. Assuming they accept, a notice of your request will be published in your local Gazette. (The Gazette – Office Public Record)
- If nobody objects, the company will be struck off the register once the 3 months mentioned in the notice has passed
- A second notice will be published in the Gazette – this will mean the company won’t legally exist anymore – it will have been ‘dissolved’
If your company does not meet the conditions for a strike off, you may have to liquidate your company instead.
Liquidation
Liquidating or ‘winding up’ your company is slightly more complicated and more expensive as professional liquidators will need to be engaged to close your company for you.
Liquidation is more common when you have debts you can’t pay and need to come to some kind of arrangement with your creditors.
The company will cease trading and stop employing staff. Assets will be sold to pay off your creditors, and any cash left over may be distributed to your shareholders. If these distributions have not occurred by the time the company is liquidated – any money left over goes to the state.
Depending on the level of debt, there are 3 ways a company can be liquidated:
- members’ voluntary liquidation – where your company can pay its debts but you want to close it
- creditors’ voluntary liquidation – where you and your shareholders choose to liquidate your company because it can’t pay its debts
- compulsory liquidation – where you can’t pay your debts and one of your creditors forces you into liquidation
1. Members’ voluntary liquidation
You may choose members’ voluntary liquidation if your company is ‘solvent’ (can pay its debts):
There are 6 steps to voluntary liquidation.
- Download a ‘Declaration of solvency’ (form 4.70) or, if your company is in Scotland, ask the Accountant in Bankruptcy for form 4.25 (Scot).
- Fill in the declaration – it must be signed by the majority of directors.
- Call a general meeting with shareholders at least 5 weeks later and pass a resolution for voluntary winding up.
- Advertise the resolution in The Gazette within 14 days.
- Appoint an authorised insolvency practitioner as a liquidator who will take charge of winding up the company.
- Send your signed form to Companies House or the Accountant in Bankruptcy (for Scottish companies), within 15 days of passing the resolution.
When the liquidator is appointed they take control of the company, your responsibilities as a director will change and you will be expected to work with the liquidator to try and find the best outcome for your creditors.
The liquidator will charge a fee for your liquidation and this fee will be paid before any of the other company creditors. If cash is not available to settle the liquidators’ fee, then the liquidator may agree to be paid in assets which he will sell on to cover his fees.
2. Creditors’ voluntary liquidation
A director can propose a creditors’ voluntary liquidation if:
- the company can’t pay its debts (it’s ‘insolvent’)
- enough shareholders agree. A meeting of shareholders must be called and at least 75% (by value of shares) of shareholders must agree to the winding-up to pass a ‘winding-up resolution
Once the resolution is made there are 3 steps that must be followed.
- Appoint an authorised insolvency practitioner as liquidator to take charge of liquidating the company
- Send the resolution to Companies House within 15 days.
- Advertise the resolution in The Gazette.
Again, once the liquidator is appointed they take control of the company, your responsibilities as a director will change and you will be expected to work with the liquidator to try and find the best outcome for your creditors.
3. Compulsory liquidation
By far the most unpleasant way to liquidate your business.
You creditors can force you into liquidation if you have not paid your debts to them.
Your creditors can apply to a court to close down your company if you don’t pay your debt or deal with the request for payment. They do this by making an application called a ‘winding-up petition’.
The creditor can withdraw the petition if your company pays the debt or makes an arrangement to pay it.
Liquidators responsibilities
The liquidator is an authorised insolvency practitioner who runs the liquidation process.
You can find an insolvency practitioner through The Insolvency Service directory.
As soon as the liquidator is appointed, they’ll take control of the business.
They will:
- settle any legal disputes or outstanding contracts
- sell off the company’s assets and use any money to pay creditors
- meet deadlines for paperwork and keep authorities informed
- pay liquidation costs and the final VAT bill
- bring together people owed money (creditors) and hold meetings where necessary
- decide which creditors should be paid first
- interview the directors and report on what went wrong in the business
- get the company removed from the companies register
In a creditors’ voluntary liquidation, the liquidator acts in the interest of the creditors not the directors.
Directors responsibilities
When a liquidator is appointed, directors:
- no longer have control of the company or anything it owns
- and can’t act for or on behalf of the company
If you’re a director you must:
- give the liquidator any information about the company they ask for
- hand over the company’s assets, records, and paperwork
- allow the liquidator to interview you if they ask
You can be banned from being a director for 2 to 15 years or prosecuted if the liquidator decides your conduct was unfit. ‘Unfit conduct’ includes:
- allowing a company to continue trading when it can’t pay its debts
- not keeping proper company accounting records
- not sending accounts and returns to Companies House
- not paying any tax owed by the company
- using company money or assets for personal benefit
The creditors meeting
The liquidator will arrange a meeting with all the creditors within 14 days of the winding-up resolution.
At least one of the following must also be there:
- another director
- the limited company secretary
- the liquidator
Creditors must be informed about the meeting at least 7 days before it happens and it must be advertised in The Gazette.
At the meet, ng your company’s creditors can question company directors about the company’s failure and suggest an alternative liquidator if they are not happy with the one chosen.
You must present the statement of affairs at the meeting. This gives details of the company’s situation and assets.
After the meeting, the liquidator will send the statement to Companies House or to the Accountant in Bankruptcy for companies in Scotland.
The liquidator is an authorised insolvency practitioner who runs the liquidation process.
Find an insolvency practitioner through The Insolvency Service directory.
As soon as the liquidator is appointed, they’ll take control of the business.
They will:
- settle any legal disputes or outstanding contracts
- sell off the company’s assets and use any money to pay creditors
- meet deadlines for paperwork and keep authorities informed
- pay liquidation costs and the final VAT bill
- bring together people owed money (creditors) and hold meetings where necessary
- decide which creditors should be paid first
- interview the directors and report on what went wrong in the business
- get the company removed from the companies register
In a creditors’ voluntary liquidation, the liquidator acts in the interest of the creditors not the directors.
Once your limited company is wound up, the liquidators duties are discharged.
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