When it comes to closing a limited company, there are a number of ways this can be achieved, chiefly by either liquidating the company or applying to have it struck off.
While both company strike off and liquidation result in the same ultimate outcome – the closure of an unwanted limited company – the way in which this is achieved is markedly different.
Liquidation is a formal insolvency process which can only be entered into under the guidance of a licensed insolvency practitioner; the strike off process, however, is much more informal in nature and can be completed by the company’s directors themselves. This lack of professional input means the costs associated with strike off are much lower when compared to liquidation, however, the drawback to this is that you will not have anyone guiding you and ensuring this solution is the most appropriate option for you and your company.
The strike off process begins with the filing of a completed DS01 form along with the applicable fee. This must be signed by a majority of the company’s directors before being submitted directly to Companies House. Directors must also ensure a copy of this form is sent to all notifiable parties which include creditors, employees, shareholders, and any other directors. Companies House will then advertise the strike off application in the Gazette, allowing any interested party to object to the proposal. If no objections are received, the company will be dissolved following a period of two months and the company will subsequently cease to exist as a legal entity.
When deciding how to go about bringing your limited company to an end, you must first consider whether it is solvent or insolvent. A company is deemed to be solvent if it can meet its obligations and repay all outstanding creditors in full. If your company has debts it is unable to repay, then it is classed as insolvent and your options for closing the company are reduced.
In order to strike off a company, certain criteria must first be met; the main one being that the company must be solvent at the time of closure.
A solvent company can choose to close using either liquidation, by way of a Members’ Voluntary Liquidation (MVL) or by applying to Companies House to have the company struck off, but insolvent companies do not have these options. Unfortunately for directors of insolvent companies, the strike off process is not suitable for their situation.
If you attempt to strike off an insolvent company you should expect one or more of your creditors to submit a formal objection to Companies House which will halt the strike off in its tracks. This is because when a company is struck off it is no longer considered a legal entity, and any debts owed by the company at the time will not be able to be recovered as the company simply does not exist. It is therefore in the interests of creditors to block the proposed strike off, which will allow them to continue to chase the company for the monies owed.
For those that have had their strike off application suspended due to being insolvent, liquidation is an option which remains open. When a company enters liquidation, an insolvency practitioner is appointed to realise company assets before using the proceeds of these to repay creditors as far as possible. Any debts which remain outstanding after all company assets have been exhausted will be written off (unless these have been personally guaranteed). The company will then be wound down in an orderly manner and dissolved at Companies House in accordance with the Insolvency Act 1986. The company will then cease to exist as a legal entity.
When it comes to closing a limited company, careful consideration must be given to its financial position and how this affects the available closure options. If you are considering closing your limited company, the experts at Company Closure can help you understand your current position, talk you through your options, before identifying the most appropriate closure method for your company.