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There are many aspects to consider before deciding to close your limited liability company. Some of these may sound obvious, while others can be overlooked in the potentially confusing process and can easily be overlooked if you are unfamiliar with liquidation.
This can be especially true if your company is insolvent and under pressure from its creditors.
Here are some scenarios in which you may need or want to close your business and some essential steps to take.
When do you want to liquidate your company?
A company does not have to be insolvent to go bankrupt. You may want to liquidate a solvent company for one of the following reasons:
- Market changes that impact the future viability of your business.
- The company has reached the end of its life or has achieved its purpose.
- You are retiring as director without a successor and you do not want to sell the company.
- The company is insolvent, unable to pay its obligations as they fall due, and pressure from creditors makes trading impossible.
Before deciding how to close your business, consider its situation, including the following circumstances:
- Is your company solvent or insolvent?
Your company is solvent if it has no outstanding debts and can repay its bills when they are due. If this applies to your company and you want to close it, you can do this through a dissolution, or through a solvent Member Voluntary Liquidation (MVL) if the company has sufficient assets.
If the company is insolvent, you should seek advice from a licensed and regulated insolvency practitioner as soon as possible. These highly experienced professionals can help you find the best solution for your business.
What are the tax obligations of your company?
Any outstanding amounts owed to HM Revenue & Customs (HMRC) must be paid prior to liquidation. The company’s final accounts must also be settled. If the company cannot afford to pay its bills to HMRCthey will likely pursue you for what you owe. Do not ignore this recovery action.
Have the company’s leases been settled?
View the conditions surrounding any lease agreements for machines, real estate or commercial vehicles. Make sure these are met before liquidating your business. Contact your leasing provider and discuss your situation and intentions with the company prior to bankruptcy.
What are the rights of your employees, including dismissal?
When it’s time to liquidate your company, think about your employees. The prospect of redundancy can be an unsettling and uncertain time, and when dealing with this matter you must take their situation into account. Make sure you inform them in a timely manner and what they are entitled to.
Does the company have an unpaid Director’s Loan Account or Bounce Back Loan?
Any outstanding director loan account must be addressed prior to liquidation. If these are outstanding, you could be held personally liable for the company’s debts.
Similarly, if your company took out a reset loan during the COVID-19 crisis and the company still hasn’t repaid the outstanding amount when you liquidate, the loan becomes an unsecured debt. There were no personal guarantees, but if you abused the Bounce Back Loan, you could still be held personally liable for the outstanding amount.
If you have any of these outstanding matters, please contact a licensed and regulated insolvency practitioner before attempting to close the business.
What to do now
Once you’ve considered all of the above, you need to know whether your business is solvent or insolvent, which will help you determine your next course of action.
Solvable liquidation
If your company is solvent and has sufficient assets to warrant a solvent liquidation, you can do a Members voluntary liquidation (MVL). Closing the business this way, rather than dissolving it, means you can benefit from Business Asset Disposal Relief (BADR).
Insolvent liquidation
An insolvent company that cannot feasibly recover from its heavy debts must close through a creditors’ voluntary liquidation (CVL). This process closes the bankrupt company and draws a line under its debts.
Both types of liquidations must be carried out by a licensed and regulated insolvency practitioner.
To summarize
Closing your limited liability company is a multi-faceted 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 leasing providers. It is essential that you understand these to ensure the process runs as smoothly as possible while you carry out your duties as a driver.
Speak to a licensed and regulated insolvency practitioner for tailored advice on the most suitable route for your business.