Winding up a company
Winding up a company, in its simplest form, means to stop trading, liquidate your assets and close your limited company, striking off the company from the register at Companies House. Winding up a company is also known as liquidating a company.
When you wind up a company, you use the assets released from the company to pay any debts that it has. If there’s any funds left from these payments, this money goes to the company’s shareholders.
If you still have outstanding assets after the winding up of your company, these go to the Crown as ‘bona vacantia’ (which means ownerless property). One of the benefits of using a formal solution when winding up a company is that the sale of all assets is taken care of for you, by your licensed insolvency practitioner (also known as a Liquidator).
What are the benefits of winding up a company?
There are significant benefits to winding up a company. These vary depending on the financial status of your company at the time of the winding up.
There are three ways of winding up a company.
Creditors’ Voluntary Liquidation (CVL)
This is for insolvent companies. Insolvent means you cannot pay your debts on time or in full, now or in the future. Your business is liquidated to release the value of its assets and the monies used to pay back your creditors. The benefits of winding up a company in this way are:
- You stop creditors, including HMRC, harassing you for payment as they will be paid back as part of the CVL process.
- You stop any legal action which may have been threatened against you. Legal action to force the winding up of a company leads to Compulsory Liquidation, which we look at in more detail below.
- If your company enters a CVL, your employees have the right to claim unpaid salary, holiday pay, notice pay and redundancy, depending on their eligibility.
This is the forced winding up of a company as the result of legal action taken usually by creditors. They first must send a winding up petition to the courts, showing that you have outstanding debts of over £750 and that they have already taken action to reclaim their money.
Should the courts find in their favour, a winding up order is given to close your company. At this point the courts appoint an official receiver and matters are taken out of your hands. One of the benefits of seeking a CVL before things get this far is that you prevent a winding up petition from being sent.
Members’ Voluntary Liquidation
This is for solvent companies. Solvent means that you are able to pay all your debts on time and in full. Even when it’s solvent, there are reasons for winding up a company. You might be a contractor taking on a full-time role, a retiring business owner or have a dormant company which no longer has a purpose. The benefits of winding up a company using an MVL are:
- You can save a lot on tax bills. If you have over £25,000 and under £1,000,000 in retained profits, Business Asset Disposal Relief (previously Entrepreneurs’ Relief) can bring your Capital Gains Tax to just 10%.
- Every loose end is tied. All your assets are liquidated so you don’t fall victim to bona vacantia. Your liquidator will also make sure that every debt is paid and piece of paperwork is taken care of, so there are no nasty surprises down the line.
- You no longer have to pay an accountant to take care of the dormant company paperwork, saving you time and money.
How can liquidation.co.uk help you with winding up a company?
If your business is insolvent or you’re being threatened with a winding up petition, our licensed insolvency practitioners can use a winding up process to protect you and stop matters going any further.
If you’re looking to wind up a solvent company, we can make sure you get the most back from your business. In many cases, we can even pay you the funds from the liquidation before the MVL process takes place.
As industry leading experts with 40 years’ experience, we are in the best position to match any like for like quote ensuring you receive the best service for the lowest price.
How do I know if my business is insolvent?
There are likely to be signs of financial difficulties in your company which you’ve already spotted. To get a better idea of its financial status, we recommend using these two tests.
The cash-flow test: Compare the income of the business, including the dates which payments are expected to be made, with the outgoings of the business. If you cannot meet your financial obligations at the right time and in full, this is a sign that the business is insolvent.
The balance-sheet test: Compare the total of the business’ assets – be sure to include things like stock, cash in the bank, brand value – with the business’ liabilities. If the overall figure is negative, this is a sign that the business is insolvent.
Do I need an insolvency practitioner when I am winding up a company?
Yes. Winding up a company – or liquidating a company – is a formal process that requires great knowledge and formal qualifications. The only people who can oversee the winding up of a company are licensed practitioners. You might have people who claim to be ‘insolvency experts’ but you must check their credentials before you engage them. If in doubt, you can verify that they are a licensed insolvency practitioner on the gov.uk directory.
What happens after winding up a company?
Whether you are liquidating your company due to insolvency or winding up a company that’s solvent, you are usually free to start a new company. In some cases, we can even offer the directors of an insolvent company the option of buying back assets with value and starting afresh. This Start Afresh Liquidation is a service that’s unique to FA Simms. Call us on 0800 046 4071 to see if this winding up a company solution is right for you.
There are some situations in which you cannot open a new company after you’ve gone through liquidation. Most commonly due to malpractice by you being found as one of the causes of your previous company’s insolvency. In some cases, this can lead to a Director’s Disqualification, which means you are legally banned from running a company or performing the role of director in a company for up to 15 years.
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