Winding up a solvent company can be a tricky process with lots of moving parts. It doesn’t matter if your company is no longer needed or no longer viable; if you want to move on to other projects, or you’re looking to retire, there are always potential stumbling blocks.
You have multiple options to consider depending on your company’s position, and there are lots of ways you can trip up in the process and land yourself in hot water if you aren’t careful. This is why obtaining expert assistance is essential.
An independent business advisor will guide you through the process of winding up a solvent company in the UK, explain your options, and ensure that the entire procedure is brought to a satisfactory conclusion.
How to Wind Up a Solvent Limited Company
Once a company is deemed to be no longer required for whatever reason, the business can be closed by the process known as ‘winding up’.
If you are planning to shutter your company you will need to agree on a resolution to wind up. This decision is generally decided upon by shareholders and company directors.
Once a winding up resolution is reached, the process of winding up a solvent company in the UK can vastly differ depending on what your situation is and which method you opt to take.
If you wish to close your solvent company and the business is no longer active, you can ‘strike it off’.
A company strike off is the process where a business is removed or ‘struck off’ the register of companies and is thereby dissolved.
For a company to apply to be struck off there are certain requirements that you and your business will need to meet:
- It can’t have traded or sold off any stock in the last three months
- Your business can’t have changed names in the same period
- It can’t be at threat of liquidation
- There can be no agreements in place with creditors
If these conditions for striking off your company do not all apply then you will need to seek out other avenues instead.
Please note that you are obligated to inform HMRC before striking off your company. Should your business still be in the position where it has employees on the books, it is a legal requirement that you inform them and carry out the relevant redundancy processes according to government guidelines before striking off your company.
Members Voluntary Liquidation (MVL)
A Members Voluntary Liquidation (MVL) is a process whereby shareholders appoint an independent insolvency practitioner to act as liquidator to formally shut down a solvent company. The timeline of a MVL is typically between six months and one year depending on the complexity of the case.
The advantage of a MVL is that it will offer tax benefits to shareholders in the face of liquidation. To qualify for a MVL, a director needs to pledge that the company is:
- Able to pay creditors
- Able to pay taxes
- Able to meet all contractual obligations
After this all directors are required to make a declaration of solvency, this will include a closing financial statement that must be sworn before a witness (a solicitor or notary).
A statement of insolvency must also be placed into the UK public record The Gazette within 14 days, this is to alert creditors of intentions to liquidate.
Within five weeks of the declaration of solvency shareholders must meet to pass a resolution to agree to the company being placed into liquidation. This meeting will generally also result in the appointment of a liquidator.
The appointment of a liquidator results in the executive powers of directors being stripped, allowing for total control of the business. Once a liquidator has been brought in, the next step is for them to then assess all company assets, to realise them. This is to guarantee that there are no remaining company liabilities left outstanding.
They will also settle any outstanding creditor claims against the company (with the addition of statutory interest from the initial date of liquidation), and share any remaining funds between shareholders.
Once this process is complete, another notice is to be placed in the Gazette. The company will then be removed from The Register of Companies, and will officially cease to exist.
Striking off vs MVL: Which Should You Choose?
When it comes down to deciding whether striking off or MVL best applies to your situation, there are a number of factors to consider.
Generally, the cost of voluntarily striking off is significantly less than a MVL. If your company holds limited assets, or no assets at all, or if you’re a sole director looking to retire, striking off could be the optimal choice for you. But for potentially complicated cases, legal fees may need to be considered also.
A MVL is likely to cost more due to the appointment of a liquidator, but the potential benefits could incentivise this course of actions, particularly if the company holds significant assets.
Possible Legal Risk
The appointment of a liquidator in the process of a MVL should ensure that all legal guidelines are being followed, and you and your fellow directors/shareholders will be protected against any possible legal risks.
Due to striking off not requiring an independent agent to oversee, it does leave you more open to legal risk. Anything other than following the striking off procedure to the letter could mean funds were not distributed lawfully and could come back to bite you.
Both striking off and a MVL can leave you personally vulnerable in the event of any irregularities in the process.
If it emerges that you conducted yourself in a way you shouldn’t in the process, for example; you didn’t inform creditors when striking off, or you hid company debt from a liquidator during a MVL, even without realising what you were doing, you could face possible financial repercussions, liability for any company debt, or you being disqualified as becoming a director in the future.
Why Work with Inquesta
If your company is in the situation where it needs to be wound up, it is important to seek specialist help as early into the process as possible to avoid the potential for highly costly mistakes.
Inquesta have decades of experience helping companies through the process of winding up both insolvent and solvent companies, and are perfectly placed to assist you throughout, ensuring you avoid any possible stumbling blocks and legal issues.
We have created a free to download eBook guide that will take you through the liquidation process from top to bottom while going over the warning signs you should look out for, what impact it could have on you and any other stakeholders, and more.
For more information about how Inquesta can help guide you through a tough situation, contact a member of our team today or request a free consultation.