The Role of an Insolvency Practitioner in Winding Up a Solvent Company
The goal of winding up a solvent company is, in most cases, to repay the firm’s creditors and distribute any remaining proceeds to the shareholders. The role of an insolvency practitioner is to facilitate this aim, and ensure that everything goes through as it is intended to, with as few complications as possible.
The process of closing down a solvent business will usually start with a meeting and a decision being made between shareholders/directors to ‘wind up’ the company. The reason for winding up a solvent company may change, but something that should always stay the same is the key role of an insolvency practitioner in overseeing and directing the whole process.
The benefit of winding up your solvent company is that you are afforded more freedom and control over the process. You have the opportunity to dictate where the proceeds raised via the winding up go, unlike a court-ordered liquidation, where the court will decide.
Despite this added control, it is essential to appoint a licensed insolvency practitioner to oversee the process from start to finish. Without one you could find yourself overlooking key details.
Options For Winding Up a Solvent Limited Company
When it comes to winding up a solvent limited company there are generally two options open to you. Members Voluntary Liquidation (MVL) and striking off. Both methods have their own benefits and possible issues, but either represents a viable way to close your business.
Here is how they work:
MVL
To apply for a MVL, a company’s board of directors must certify in writing that the business:
- Is solvent
- Can pay its taxes
- Can pay all of its creditors
- Can fulfil all outstanding contractual obligations
The process of a MVL entails the appointment of a liquidator who will realise assets, resolve any disputes, pay outstanding creditors, distribute surplus funds to shareholders and members, and more.
A MVL will lead to a business being officially dissolved, and formally removed from the companies register once the obligations above are fulfilled and clearance has been received from HMRC.
Strike Off
If your solvent company is no longer operating, then striking off is the most viable option. As the name suggests, a strike off is the process of ‘striking off’ a company from the register of companies and ultimately dissolving it.
To apply to strike off your business, it must meet the following requirements:
- The business cannot have traded or sold any stock within the last three months
- The business cannot be at risk of liquidation
- No creditor agreement can be in place
To follow through with striking off a company, all employees must first of all be made redundant according to the relevant guidelines. HMRC should also be notified of the firm’s intentions.
Download our FREE Guide to Liquidation
We appreciate that while a company moratorium will provide vital breathing room in which you can restructure your business and regain some financial stability, it’s essential that you’re prepared for any and all potential outcomes. If your situation cannot be recovered during a period under moratorium, company closure and liquidation may be the next step.
To help you navigate this complex process, we’ve created a comprehensive ‘Guide to Liquidation’. This FREE download details everything you need to know. Even if your current focus is on business recovery via an insolvency moratorium, it’s important that you have a solid understanding of liquidation should your restructuring efforts not come to fruition.
Download our FREE Liquidation Guide today and ensure you’re ready to act, no matter where your financial journey might lead.
How to Choose Which Option is Best for Your Circumstances
Working out the perfect method for winding up a solvent company is vital for ensuring the process goes through smoothly, in a manner that suits all parties involved.
When deciding between a Members Voluntary Liquidation and striking off, there are a number of factors to consider to guarantee that you get the desired experience.
The Process of Winding Up a Solvent Company in the UK
The exact process of winding up a solvent company in the UK depends largely on whether you choose a Members Voluntary Liquidation, or to have your business struck off. That being said, there are some similarities between them, such as the requirement for shareholder approval and how assets are distributed.
Here are the main points of the winding up process for each method:
MVL
Declaration of Solvency
To begin the MVL process, a firm must first of all hold a special board meeting, where the majority of directors are required to vote in favour of the proposals. A declaration of solvency is also sworn.
It is essential that this declaration meets the following requirements:
- Includes a statement from the directors that they have conducted a thorough review into the company’s finances
- Confirms the directors believe the firm will be able to settle all its debts within 12 months
- Contains a list of assets and liabilities
- Appears in Statutory Form 4.70
Should the company be found to be insolvent once this declaration has been submitted, its owners could find themselves in serious trouble. It is therefore essential to conduct thorough due diligence and seek expert guidance beforehand.
Shareholder Meeting
With the declaration of solvency complete, a company must hold a shareholders’ meeting, where 75% or more of those in attendance will need to agree to the MVL. A written resolution is also an option in certain circumstances.
Once passed, the special resolution must be filed with Companies House and advertised in the Gazette within 14 days. The shareholders must also appoint a liquidator to oversee the entire process. A simple majority is required for this to go through.
Distribution of Assets
The liquidator will liquidate all the company’s assets and distribute the proceeds to creditors in statutory order of priority. Any funds left over will then be sent to shareholders.
When all assets have been distributed, a final account is prepared by the liquidator and sent to shareholders and the Registrar of Companies. The firm will then be dissolved three months after the final return was sent.
Strike Off
Submit Application
For a company to be struck off, an application must be made by the directors to Companies House. At least a majority of the directors must agree to the striking off before the process can begin.
Once the application has been made, the firm has seven days to send copies to:
- Shareholders
- Directors
- Employees
- Creditors (including both current and prospective creditors)
- Any party that may have an interest in the company’s affairs (for example, trust managers, pension fund operators etc)
Much like a MVL, it is important for company directors to immediately stop the process if it becomes apparent their business will not be suitable to be struck off. If they do not, they could face grave repercussions. If you are ever unsure, it is a good idea to speak to an expert.
Publication
Once the application to strike off a company has been received, Companies House will publish a notice in the Gazette and invite anybody who objects to the proposals to contact them in writing.
Provided there are no objections, the business will be struck off the register of companies some two months after the notice appeared in the Gazette. A further notification will also appear in the Gazette to confirm the process has been completed.
Dealing with Assets
Prior to the company being struck off, all suitable assets must be extracted from it in accordance with regulations. Any distributions should be handled in a tax-efficient manner.
When the company is struck off, all remaining assets become the property of the Crown. Detailed planning is required to ensure you make the best out of the process, so seek guidance if you are ever unsure.
How Inquesta Helps with the Solvent Winding Up of a Company
If you are wanting to wind up your solvent company, it is vital that you seek expert assistance at your earliest opportunity. With so much at stake (and to potentially lose), you need to make sure you are protected. This is where Inquesta can help.
The Inquesta team are specialists when it comes to the solvent winding up of a company, and have amassed decades of experience in assisting business owners in a wide range of industries.
We understand that no two companies are ever the same, which is why we will carry out a detailed review of your circumstances and recommend what we believe is the best solution for your individual requirements. A personalised service that you can rely on.
With us, there are absolutely no hidden agendas. We endeavour to put the needs of our clients at the forefront of everything we do, so you can be confident you are dealing with a business that has your best interests at heart.
Should you ever be unsure about the solvency of your operation, we can also offer an independent review to give you peace of mind. We can even assist if solvent winding up does not turn out to be viable for your business. No matter your circumstances, you can depend on Inquesta to assist.
Get In Touch
Our Specialist Team
We’ve assembled an expert team that has decades of experience with closing down a solvent company.
Steven Wiseglass
Director of Insolvency
A co-founder of Inquesta, Steven is a licensed Insolvency Practitioner with over a decade of experience in the field. He is a member of the Insolvency Practitioners Association, Association of Business Recovery Professionals (R3), and his insolvency licence is issued by the Insolvency Practitioners Association. In addition, he sits on the R3 committee of the North West Regional Committee.
Steven specialises in advising directors of small to medium-sized businesses, and has a wealth of expertise in providing the most appropriate advice whatever the firm’s circumstances may be. He has also been instrumental in helping company directors save their business and rebuild them into successful enterprises.
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