If you decide to wind up your company, it’s important to know that this process can differ slightly from liquidating it.
Winding up involves your company ceasing to trade and getting its affairs in order. Whereas liquidating your company can only be done by using the services of a licensed insolvency practitioner, who can start the formal process that involves dealing with your company’s finances and potentially selling any assets.
There are options you can take that don’t require the appointment of a liquidator.
A company strike off
Opting to wind up your company and then applying to have it struck off the register at Companies House does not require an insolvency practitioner to be appointed. The process is also known as dissolving the company, and it can be done by the directors of your company themselves.
The directors will need to submit a DS01 form, and striking off the company will cost £10, which needs to be paid to Companies House. This may seem like a simple way to close down your company if it’s going through serious financial problems, but there are serious drawbacks to choosing this option.
A strike off is designed for a company that’s solvent, and therefore doesn’t have outstanding debts. When a company is struck off from the register, it will no longer legally exist. Creditors will no longer be able to chase for repayments of any money owed to them. Therefore it’s in their interest to oppose your strike off application if your company is insolvent.
Companies House will suspend a strike off after receiving an objection from creditors. Meaning you will have to reapply in order to continue. The problem is, there’s no limit on the amount of objections creditors can make, which might make it impossible for you to successfully strike off your company. Plus, even if you are successful, creditors can demand that your company be reinstated to the register at any time, so they can collect the debts owed.
Why it helps to appoint an insolvency practitioner
A company dissolution may be a cheaper option, but nothing can compare to getting the expert help and guidance you need from an experienced insolvency practitioner. When you realise that your company is insolvent, you have a number of duties as the director, which include making sure that the interests of your creditors are prioritised. This means not showing bias, such as making preference payments to one creditor over another.
When you choose to get help from an insolvency practitioner, they will be able to handle things for you, ensuring operations are brought to a close in the most efficient and appropriate manner possible – including facilitating the sale of company assets, handling the distribution of funds, and notifying any outstanding creditors that the company is to be liquidated.
Going through a CVL
One option you can take when your company can’t pay its debts (i.e. it is ‘insolvent’) and needs to be liquidated, is to go through a Creditors’ Voluntary Liquidation (CVL).
Your shareholders must agree and pass a ‘winding-up resolution’ in order for you to propose a CVL. If you choose to go through a CVL, it’s an extremely effective solution for preserving your personal and professional reputation, as well as maximising the returns for your creditors.
When going through a CVL with a licensed insolvency practitioner, your company will stop trading and be liquidated – and all your legal duties as a director to your creditors will be fulfilled.
Opting for an MVL
If your company is solvent with assets over £25,000, then a Members’ Voluntary Liquidation (MVL) is likely to be the most tax-efficient option for you.
Through an MVL, any funds that are distributed will be subject to Capital Gains Tax, as opposed to Income Tax. Plus you may also qualify for Entrepreneurs’ Relief (ER), which will give you a 10% marginal rate on distributions. ER can allow you and the other shareholders of your company to make considerable tax savings.
Clarke Bell will always aim to distribute assets after 35 days from the date of your company’s liquidation. The cost for an MVL is just £995 + VAT + disbursements.