The quick answer
In a nutshell, the three options to close a company are:
1. Striking off using Companies House from DS01. If you do not owe any creditors or very small sums then you can deal with striking off yourself or get your accountant to do it.
2. Compulsory liquidation. Where you have a few creditors and can afford to pay for a solicitor – cost £3,000 upwards but takes a long time 2-3 months.
3. Creditors voluntary liquidation. Where there are creditors and assets left in the business and other issues such as employee claims. This tends to cost £3,000 upwards.
How you deal with closing down a company depends on how much you owe and if there are any assets left.
In more detail
EXAMPLES OF HOW TO CLOSE A COMPANY
The examples that follow are laid out based on how complicated your company affairs are – the simplest scenario first.
The problems arise for a director if they do not close their company properly. If they fail to file annual accounts and returns at Companies House then threatening letters and fines increase over time and could lead to criminal prosecution. So you cannot just ignore it. You also need to close down accounts with HM Revenue and Customs and make sure staff are paid redundancy and issued with P45’s.
EXAMPLE ONE – LEADING TO WHAT IS CALLED A COMPANIES HOUSE STRIKING OFF
In this example lets imagine that you owe say less than about £10,000 (there is no legal definition of what is a small amount) and have creditors who you have written to and say you cannot afford to pay them and that you are going to strike off your company unless you hear otherwise.
There are no assets left at all. You have not traded for three months. You have completed all of your tax and VAT returns as well (if you do not, HM Revenue and Customs will write to Companies House lodging an objection to striking off). You then send off the form DS01 with a fee of £10 to Companies House.
Of course, if you have paid off all of your creditors in full and taken out any final money as dividends so that the company is completely clean then you should use this route to strike off as well. This option is the cheapest way to get rid of a company.
EXAMPLE TWO – LEADING TO COMPULSORY LIQUIDATION
In this scenario the company has assets of less than £5,000 but it has various unpaid creditors or is behind with filing tax returns or accounts and has now stopped trading.
An application can be made by a director to Court to put the company into compulsory liquidation. Normally you would get a solicitor to do all of this and it would cost about £3,000. You can use any remaining company funds or assets to pay for this.
It usually takes 2-3 months to follow this process. Once it has gone into liquidation you will have to deal with the Official Receiver who will be the company liquidator. You will have to co-operate with them and deliver up any company record or assets. Failure to do so would have serious consequences.
The alternative is to ask a creditor to force you into liquidation and pay for it. Often HM Revenue and Customs are prepared to do this.
Compulsory Liquidation is a good way of dealing with a company closure, but beware that there will be an investigation and the liquidator will be looking for any acts of preferences, undervalue transactions or misfeasance.
EXAMPLE THREE – CREDITORS VOLUNTARY LIQUIDATION (“CVL”)
This means a Licensed Insolvency Practitioner is approached and asked to be liquidator. They will prepare all of the statutory forms and paperwork to make the liquidation happen, usually within two weeks.
The advantage to the director is that this is a faster process and you can choose the liquidator that you would rather deal with (although a liquidator can be replaced in certain circumstances). The liquidator will deal with any unpaid employees and help them make claims from the government redundancy fund and also deal with all of the other creditors. They will also collect in and sell any assets.
A CVL is an effective process where there are company assets above £5,000 (or someone willing to cover the liquidator’s fees) and there are a number of unpaid creditors. An investigation will be carried out by the liquidator to make sure there are no preferences, undervalue transactions or misfeasance’s.
A liquidation like this will mean that all obligations to file statutory accounts and returns at Companies House will end. You also no longer need to complete VAT or tax returns for the company.
Whichever route you chose, you will need to get your company records together (paper work and computer data), work out the remaining creditors as best you can and the assets and take professional advice before you decide on the correct route for you and your company.