Winding up a limited company differs, depending on whether your company is solvent or not.
It is important to know that for all winding up procedures, shareholders must attend a meeting, where they vote and 75% of shareholders must agree, for a winding up resolution to be accepted. Then,
- Insolvency practitioners are appointed,
- The resolution must be sent to companies house within 15 days
- The Gazette must advertise the resolution within 14 days.
Winding Up A Solvent Company
If the company can pay all debts owed to creditors before closure, the procedure of winding up is simpler. You have two options:
- Company Dissolution: When the company has ceased trading for 3 months, you can fill in a ‘DS01 Striking off application’. This then goes through to Companies’ House, who, if agreed, will close the company and remove it from the register.
- Members Voluntary Liquidation (MVL): This is usually the option taken when directors wish to retire or just simply end a business’ life. A declaration of solvency should be made. A licensed insolvency practitioner is called in to turn the company’s assets into cash and then distribute the profits from this to members.
Winding Up An Insolvent Company
If a company cannot pay its debts, then the company will be wound up by either, an insolvency practitioner appointed by the directors/creditors, or the Official Receiver (OR) appointed by the court. The OR is accountable for distributing the company’s assets for cash, to help pay off the debts. The creditors have priority here over any members’ dividends. There are two options:
Compulsory Liquidation:
Creditor action forces closure following the issue of a winding up order if the company cannot respond to the demand by paying the debt off or negotiating. Additionally, directors can apply to the court for this. You must be able to prove that the company cannot pay its debts of over £750 and show the shareholders’ approval. Due to the Coronavirus pandemic it is not possible to serve a petition on a hospitality business if the debt is due to the shutdown.
Creditors Voluntary Liquidation:
Creditors will vote on the decision to wind up a company. If 75% agree, then the winding up will begin. A licensed insolvency practitioner will be employed to help and ensure the correct distribution of the liquidated assets. This is usually done to avoid further debts of the company and reduce the risk of personal liability.
What happens now?
After the winding up process, the company ceases trading and no longer employs people. After being removed from the Companies’ House register, the company is no longer in existence.
What if I am threatened with a winding up petition?
If you are sent a winding up petition, you must act immediately. If you do not, the petition may be advertised which can result with your bank account being frozen. This brings consequences for the continued operation of the business.
What if I am chasing a debt and wish to wind up the limited company?
If this is the case, you must be very careful. Issuing a winding up petition should be a last resort. You must have the debt proven and not in dispute. Additionally, there are large costs attached to issuing a petition (up to £3000!), so therefore it is best saved for large debts.
