Deciding to close your company

Business owners facing cash flow difficulties and juggling debt commitments may decide that their only option is to close their private companies. If trade has declined and your business cannot be transferred as a going concern, voluntary closure may be a solution that you have been considering.

The legal procedure that you follow will require the involvement of all directors or shareholders and will depend on your company’s ability to pay its debts. Robert Goddard, company law solicitor at Thackray Williams explains the options.

Application to Companies House

If your company has paid its creditors and stopped trading, a majority of the directors may apply to Companies House to have it struck off the register. To close in this way, your company should not have carried on business, changed its name or sold any rights or property during the past three months, although it may have settled its debts.

If these and other legal conditions cannot be met, there are two voluntary liquidation procedures for closing down a company. However, if you simply stop trading and take no further action, your company will still be in existence and subject to ongoing legal requirements, like filing tax returns.

Other essential steps for closure include: notifying those affected, legally ending the employment of any staff, preparing final accounts and resolving tax and other liabilities.

Members’ voluntary liquidation

If it appears that your company will be able to repay its debts within 12 months, closure can be started by a majority of the directors making a statutory declaration of solvency which includes a statement of corporate assets and liabilities and obtaining a company resolution to wind up. An authorised insolvency practitioner will have to be appointed to run the process for you and ensure that the company is legally closed down after repayment of debts.

Creditors’ voluntary liquidation

If your company has insufficient means to pay its debts, then in order to close the directors should obtain a special shareholders’ resolution to stop trading because of the company’s liabilities. An insolvency practitioner must be appointed to manage the process, including the resolution of outstanding debt. Creditors will be invited to a meeting to consider a statement of affairs; listing the company’s assets, liabilities and different types of creditor and demonstrating the extent to which debts can be accommodated. Your insolvency practitioner will take over the necessary duties, leading to your company’s eventual closure.

Administration

If you are still considering your options but your company is under pressure from creditors who could force it into a disadvantageous position or compulsory closure, administration might be appropriate. During administration the company will be protected from creditors making or continuing claims without legal permission, allowing time to sell corporate assets at the best price, deal with debts and consider solutions.

Administration may be initiated by the directors but must be managed by an insolvency practitioner. When administration ends, depending on the circumstances, the company may be closed voluntarily or, if possible, could be rescued and kept as a going concern.

Corporate voluntary arrangement

If your company has a range of onerous debt commitments, a corporate voluntary arrangement may enable you to agree a supervised programme of repayment with creditors, approved by the court. While under this arrangement, creditors may not pursue their claims further and you will be able to continue trading, take better control of finances and review your options. Small businesses may also have the right to apply for a temporary suspension on debt repayment. When the arrangement ends, you may still be in a position to close your company voluntarily, or if circumstances permit, continue trading.

These procedures are governed by detailed legal rules, requiring steps to be taken, often within set time limits. Creditors also have a range of legal rights which may influence your actions. After appointing an insolvency practitioner, your duties as a director will change and closure may impact on your plans for starting another company. There may also be tax or financial implications that you should consider. Alternatively, you may decide to keep the business open, in preference to closure.

If you are considering closing your business, you should obtain legal advice on your circumstances and discuss the options available before embarking on any of the procedures.

The contents of this article are for the purposes of general awareness only. They do not purport to constitute legal or professional advice. The law may have changed since this article was published. Readers should not act on the basis of the information included and should take appropriate professional advice upon their own particular circumstances.