If your company has stopped trading, you cannot just ask Companies House to strike your business off if you have assets, creditors or unknown liabilities such as tax debts. How you deal with closing down a company depends on how much you owe and if there are any assets left.
In a nutshell, the three options to close a company are:
- 1. Striking off. If you do not owe any creditors or very small sums. You can deal with striking of 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.
- 3. Creditors voluntary liquidation. Where there are creditors and assets left in the business and other issue such as employee claims.
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 problem 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.
Example one – Leading to what is called a section 652 Companies Act Striking Off
In this example lets imagine that you owe say less than about £5,000 (there is no legal definition of what is a small amount) and have creditors who have written to and say you cannot afford to pay them and in such they are going to strike off your company unless you hear otherwise.
There are no assets left at all. You have completed all your tax and vat returns as well (if you don’t 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 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 less than £5,000. It has various unpaid creditors or is behind 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 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 fund the £3,000 plus cost yourself (if the company has no assets) or ask a creditor to force you into liquidation and they will 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 the statutory forms and paper work 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 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 misfeasances. It will mean 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 together 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.