Whether your company is having financial issues or your successful company is shutting down, there are so many guides on closing a limited company. But getting the right advice is critical. Both local and national media have recently published articles featuring directors who have been banned after investigations found they had misused the so-called “Atherton scheme”.
Atherton was advertised as a corporate rescue service where directors of distressed companies were encouraged to sell their businesses as an “alternative” to entering formal insolvency proceedings such as liquidation.
So how do you close a Limited Company the Right Way?
At BRI Business Recovery and Insolvency, we pride ourselves on always giving the best advice and guidance for our individual clients. When closing a limited company, you will usually need to have the agreement of your company’s directors and shareholders but the way you go about it will depend on whether it can pay its bills (“solvent”) or not (“insolvent”).
Closing a Limited Company That is Solvent
If you are closing a limited company and the Company is solvent, you can either apply to strike off your limited company from the Companies Register or place the Company into Members’ Voluntary Liquidation.
Distributions of £25,000 or less can be treated as capital distributions (and therefore subject to capital taxation with a separate Annual Exempt Amount which is the equivalent of the tax free allowance for income tax) provided an application to this effect is made to HM Revenue & Customs by a company’s tax advisors. If no such application is made, then this will be treated as income which will be subject to Income Tax. Distributions above £25,000 are treated as dividends (and subject to income tax) unless you place the Company into Members’ Voluntary Liquidation. If your company is a trading company, members (or shareholders) may also benefit from Business Asset Disposal Relief (“BADR”). However, consideration needs to be given to anti-avoidance legislation in relation to BADR.
In a Members’ Voluntary Liquidation a distribution in specie (making a distribution of a non‑cash asset without first converting it into cash) is classed as returning assets to shareholders. As no money or other payment changes hands the transaction can be exempt from Stamp Duty or Stamp Duty Land Tax (SDLT) if the correct conditions allow for it.
It is imperative that all of the company’s directors and shareholders fully understand the tax implications for both a company and them personally before deciding whether a solvent liquidation represents the best course of action. Professional tax advice is considered essential here.
If you’re looking into closing a limited company that is solvent and you need some professional advice, please contact our team today. The sooner you seek professional advice the smoother the process is for everyone involved.
Closing a Limited Company that is Insolvent
If you’re closing a limited company that is insolvent, the interests of its creditors come before those of the directors or shareholders. How you close your company depends on your circumstances. You can:
1. Place the Company Into Administration
When a company goes into administration, the plan may be for the administrators to run the business, or to sell the business, or both.
If the administrators run the business this could be with a view to turning its fortunes around and handing it back to shareholders as a trading company or to sell its assets including goodwill so that the business continues in a new entity but without the burden of the historic debt.
When an administrator chooses not to run the business but to sell it immediately upon entering administration this is called a pre-pack administration because the marketing, legal work and sale agreements have been completed on the run up to administration.
2. Apply To Strike Off Your Limited Company From The Companies Register
You can close down your limited company by getting it ‘struck off’ the Companies Register. This is also known as ‘dissolving’ your company. You can only strike off your company if it has not traded or sold off any stock in the last 3 months, has not changed names in the last 3 months, is not threatened with liquidation and has no agreements with creditors.
3. Place the Company into Creditors’ Voluntary Liquidation
A Creditors’ Voluntary Liquidation is a form of company insolvency used when a company is unable to pay its debts and decides to voluntarily close down. It is initiated by a company’s directors, but the creditors play a role in this insolvency procedure and in deciding who is the appointed liquidator subject to specific legislative factors.
A CVL avoids the need for any court involvement and is handled, most often, without the need to hold a creditors’ meeting.
4. Petition for the winding up of a company – compulsory liquidation
In certain limited circumstances, if none of these options are available to you when closing a limited company, the High Court, or a county court with the appropriate jurisdiction, may order the winding-up of a Company after a creditor or the directors have “petitioned” on this basis. As this is a court-led process, the advice of a suitably experienced and qualified specialist insolvency solicitor will be needed.
Professional Advice for Closing a Limited Company
At BRI, we work with clients in many different circumstances from various locations in the UK. We can help you by providing the best professional advice when it comes to closing a limited company no matter what situation your business is currently in.
If you have questions about your company, or are looking for some support, then contact our team today. There is no charge for doing so; it is done in confidence and without obligation.