With markets and consumer habits continually changing, businesses that were once viable and successful can find themselves losing market share, and shutting the corporate can be one in all their options.
Why Would Directors Close a Company?
While a downtrend in a once profitable market can result in directors closing up shop, it will not be the one reason to achieve this. Directors nearing retirement age won’t need to pass the business on to anyone or lack a celebration to inherit it. Selling an organization is an option for directors feeling it’s time to depart their industry, though they could find doing so difficult if the market is declining. As such, closing the corporate could also be a greater option.
While company closure is commonly linked to insolvency, the 2 aren’t mutually exclusive. Debt is commonly cited as a reason for company closure, but other reasons for directors wanting to shut their company can include:
- Wanting to retire with no succeeding party.
- A change in circumstances.
- To hunt employment elsewhere.
- As a part of restructuring or merging multiple corporations.
If the corporate is insolvent, closure often is the best way forward, limiting potential damage and creditor losses.
As a director, you need to all the time concentrate on your organization’s solvent position. Signs of insolvency can include an imbalanced money flow, the corporate struggling to repay its liabilities as and after they fall due, and legal motion similar to Statutory Demands or County Court Judgements (CCJs) filed against the corporate. If the corporate’s debts have reached such a level that repaying them is unrealistic, directors can voluntarily close the corporate fairly than wait for the creditors to wind the corporate up.
Options for Solvent Corporations
When considering closing a solvent company, directors might immediately consider dissolution. Dissolving the corporate is a viable option if directors need to close an organization with little in the best way of assets. Before dissolving, directors should ensure the corporate:
- Has no legal motion filed against it.
- Has ceased trading for no less than three months.
- Can settle all employment liabilities, including PAYE, outstanding wages, holiday pay, National Insurance Contributions and redundancy pay.
- Has filed all statutory returns to HMRC and Corporations House.
- The corporate’s bank accounts have closed.
A dissolution isn’t the one way for directors of solvent corporations to shut. If the corporate has assets exceeding £25,000, directors can explore closing the corporate through a solvent Members Voluntary Liquidation (MVL).
Closing via a solvent liquidation means the corporate may qualify for Business Asset Disposal Relief (BADR), where its assets are sold, and the proceeds repay any creditors and liquidator’s fees. Any monies remaining are then distributed between the corporate’s shareholders.
For a relatively low cost, an MVL will be more tax-efficient and faster (each for money release and funds distribution) than closing via dissolution.
Options for Insolvent Corporations
Options are different for corporations unable to repay their liabilities on time.
While insolvent corporations can proceed trading with the help of formal repayment plans or additional restructuring, these solutions’ availability is determined by the corporate’s suitability to see them through.
Directors wanting to attract a line under the insolvent company and its liabilities can achieve this via a Creditors Voluntary Liquidation (CVL). This process draws a line under the insolvent company’s debts by closing it in an orderly manner. All employees are made redundant, with all unsecured debt written off. Closing voluntarily also can ensure a more controlled entry into liquidation and a greater return to creditors than if the corporate was closed via a winding-up petition.
Summary
If an organization isn’t any longer needed attributable to a declining market, directors wishing to retire, or the specter of insolvency looming, there are several options to shut it.
Directors of solvent corporations with greater than £25,000 in assets can close via a Members Voluntary Liquidation (MVL), offering a faster release of funds and a more tax-efficient closure than a dissolution. Directors of insolvent corporations past the purpose of recovery can close their company by entering a Creditors Voluntary Liquidation (CVL), providing a greater return to creditors than if the corporate was forced into compulsory liquidation via a winding-up petition.
