There are many aspects to consider before you decide to close your limited company. Some of these might sound obvious, while others can be overlooked in the potentially confusing process, and easy-to-miss if you’re unfamiliar with liquidation.

This can be especially true if your company is insolvent and under pressure from its creditors.

Here are some scenarios where you may have to or want to close your company and some of the essential steps to take while doing so.

When might you want to liquidate your company?

A company doesn’t need to be insolvent to enter liquidation. You might want to liquidate a solvent company for any of the following reasons:

• Market changes that impact your company’s viability going forward.

• The company has come to the end of its useful life or has fulfilled its purpose.

• You’re retiring as a director without a successor, and you don’t want to sell the company.

• The company is insolvent, can’t pay its liabilities when they fall due, and pressure from creditors is making trading impossible.

Before deciding how you want to close your company, consider its situation, including the following circumstances:

• Is your company solvent or insolvent?
  Your company is solvent if it has no outstanding liabilities and can repay its bills as and when they fall due. If this applies to your company and you wish to close it, you can do so via a dissolution, or a solvent Members Voluntary Liquidation (MVL) if the company has sufficient assets.
  If the company is insolvent, you should take advice from a licensed and regulated insolvency practitioner as soon as possible. These highly experienced professionals can help guide you to the solution best for your company.

What are your company’s tax obligations?

Any outstanding amounts to H.M Revenue & Customs (HMRC) should be settled before liquidation. The company’s final accounts should be settled too. If the company can’t afford to pay its bills to HMRC, they are likely to pursue you for what you owe. Don’t ignore this recovery action.

Are the company’s leasing agreements settled?

Review the terms around any leases for machinery, property, or company vehicles. You should ensure that these are met before you liquidate your company. Contact your lease provider and discuss your situation and intentions for the company prior to liquidation.

What are the rights of your employees, including redundancy?

Consider your employees when it’s time to liquidate your company. The prospect of redundancy can be a distressing and uncertain time, and in dealing with the matter, you should be sensitive to their situation. Make sure you provide adequate notice and make them aware of what they’re entitled to.

Does the company have an unpaid Director’s Loan Account or Bounce Back Loan?

Any outstanding Director’s Loan Account should be addressed before liquidation. If these are left outstanding, they could leave you personally liable for the company’s debts.

Similarly, if your company took out a Bounce Back Loan during COVID and the company still hasn’t repaid the outstanding amount when you liquidate, the loan becomes an unsecured debt. They didn’t come with personal guarantees, but if you misused the Bounce Back Loan, you could still become personally liable for the outstanding amount.

If you have either of these outstanding, speak to a licensed and regulated insolvency practitioner before you attempt to close the company.

What to do next

If you’ve considered all the above, you should know whether your company is solvent or insolvent, which will help you decide your next course of action.

Solvent liquidation

If your company is solvent and has enough assets to justify a solvent liquidation, you can explore a Members Voluntary Liquidation (MVL). Closing the company like this, as opposed to dissolving it, means you could benefit from Business Asset Disposal Relief (BADR).

Insolvent liquidation

An insolvent company that cannot feasibly recover from its burdensome debts should close through a Creditors Voluntary Liquidation (CVL). This process closes the insolvent company and draws a line under the debts.

Both types of liquidation must be carried out by a licensed and regulated insolvency practitioner.

To summarise

Closing your limited company is a multifaceted process and requires careful consideration of various legal, financial, and operational factors. Whether your company is solvent or insolvent, it has obligations to creditors, tax authorities, employees, and lease providers, and it is essential that you understand these to ensure the process goes as smoothly as possible while you fulfil your duties as a director.

Speak to a licensed and regulated insolvency practitioner for tailored advice on the most appropriate route for your company.