How do you close a company that is solvent and how does it differ to closing a company that is insolvent? David Kirk, of insolvency specialist Kirks, explains what you need to know when closing a limited company.

How do you close a company that is solvent?

There are a few options if you want to close a company that is solvent, and the best option will depend the following questions:

• Is the company still trading?
• Are there employees owed redundancy pay?
• Can all liabilities be cleared from the assets?

If there are net assets above £25,000 the usual route would be a (MVL). You will need a licensed Insolvency Practitioner who will usually give you a fixed quote to close the company and distribute the assets to the shareholders. The advantage of an MVL is that it treats the pay out as capital to shareholders, which means there’s usually less tax to pay than if the pay-out were to be by way of dividends.

If the net assets are below £25,000 then this can usually be closed informally by asking for HM Revenue and Customs (HMRC) for clearance to distribute the assets as capital. Once the company is dormant you can apply to strike it off using form DS01.

Another method may be to pay out all funds as dividends to leave a nil balance of assets. Again, at the end of this process form DS01 should be used.

How do you close a company that is insolvent?

The usual method to close an insolvent company is by using a process called (CVL). Again, you will need a licensed Insolvency Practitioner. The process takes about two weeks and brings the company to a formal close. All creditors and shareholders are notified of the process and a liquidator is appointed to get in the assets and make a payment to creditors based on what is realised.

If there are insufficient funds to pay a liquidator, then another route can be compulsory liquidation. This is a process of applying to court and it takes longer – usually up to two or three months. The costs associated with petitioning for a company to be wound up through the courts must be paid. Currently these comprise a court fee of £280 and a petition deposit of £1,600. If a solicitor is used to file the petition there will be legal costs to pay.

How do you close a company that is now dormant?

A company is ‘dormant’ if it has stopped trading and there are no new transactions of any sort. There will be no employees and the company will not be making any new sales.

If a company is dormant and the assets and liabilities are nil, a quick and low-cost way to close a company is to use form DS01. A company director can fill in this form themselves and post it off, which will apply for the company to be struck off. The fee is only £10.

Before sending the DS01 form, it’s recommended that any final tax returns and VAT returns have been submitted and you have notified these authorities of your intention, so you are de-registered for VAT. Bank accounts should also have been closed.

If you have creditors you can still apply for striking off, but they must be notified of your intention to strike off within 7 days of you starting the process. However, a creditor can apply to Companies House to block a proposed striking off.

Can you close a company if it does not have a director?

You can you close a company if it does not have a director. This situation can arise if you have a sole director who passes away. Without anyone in authority the company will grind to a halt as no one can authorise payments, sales, purchases etc.

The normal way to close a company in this situation is to apply for compulsory liquidation. An alternative maybe for shareholders to apply to the court for directions which might include appointing a new director.

However, if the sole director who died was also the 100 per cent shareholder then probate will be needed to transfer the shares to a new owner.

About the author

David Kirk is a chartered accountant and licensed Insolvency Practitioner at south west-based insolvency specialist firm Kirks.

See also

What are the responsibilities and duties of a company director?

A guide to members' voluntary liquidation (MVL)

A guide to creditors' voluntary liquidation (CVL)

Insolvency notices

Find out more

Closing a limited company (GOV.UK)

Strike off your limited company from the Companies Register (GOV.UK)

Strike off a company from the register (DS01) (GOV.UK)

Image: Getty Images

Publication date: 26 October 2020

Any opinion expressed in this article is that of the author and the author alone, and does not necessarily represent that of The Gazette.