If your business has become insolvent and the decision has been made to close, then there are certain obligations that you should be aware of. The way you close your Limited Company will depend on the amount of assets (including cash in the bank) that your company has and also the amount of debt. Below are some of the options.
1. Instruct an Insolvency Practitioner to help organise a Company Voluntary Liquidation (CVL)
You can instruct an Insolvency Practitioner (IP) to help you close your business and deal with your creditors by way of a Company Voluntary Liquidation. You’ll need to have some money or assets that can be sold to pay the Insolvency Practitioner’s fees. The scale of fees charged by IPs can vary enormously and will of course be dictated by the scale and complexity of the business.
The remit of an IP is to sell any company assets, pay company creditors, deal with the affairs of your company and then close your company. They will also investigate your conduct as a Director and if you personally owe money to your Limited Company, they will pursue you for repayment of the loan to bring these funds back into the business to repay your creditors. Any debts that you owe personally, for example if you have given a personal guarantee to creditors, will still need to be paid by you. IP’s cannot get involved in assisting Directors with these problems as it represents a conflict of interest for them.
2. Strike Off
If your company is insolvent and it cannot afford to pay for liquidation, you can also consider striking off the company. This means that you make an application to Companies House to remove your company name from the register. In order to be eligible for strike off, your company must not have traded in the last 3 months. The Strike Off application (Form DS01) will cost you £10 and you can only apply once your company has stopped trading for three months. You need to send a copy of the application to any interested parties such as creditors, employees, HMRC, pension fund holders, shareholders and so on) within one week of sending it to Companies House.
Once your application to strike off is made it will be advertised (London Gazette, England and Wales) and as long as no one objects within 2 months, Companies House will record the dissolution on the register. This means that the company has been terminated as a legal entity and from the date of dissolution any of the assets of the company will become ‘Bona Vacantia’ and the title of the assets passes to the Crown, likewise the company bank account will be frozen and any credit balance passed to the Crown. Again, any debts that you are personally liable for, for example if you have given a personal guarantee, will still need to be paid by you even after your company is dissolved. It would require a Court Order to restore the Company to the register. If there are objections to the strike off, then the strike off process will be suspended for a minimum of 6 months or until the objection is withdrawn. It’s an offence to apply for strike off if the business isn’t eligible, so always seek advice before putting through an application.
3. Compulsory Liquidation
You can consider the Compulsory Liquidation option if your company doesn’t have enough money to employ an Insolvency Practitioner. As a Director, you can apply to the court to make a court order to wind up (make bankrupt) your company. This would require all directors to be in agreement. A creditor can also apply to the court if you owe them £750 or more; if this happens it’s known as a Winding Up Petition.
If you would like any more information, or to find out whether your Limited Company is insolvent, contact us and we will offer you a free consultation to discuss your business.