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What’s the best way to close a business in the UK?

Posted on: Wednesday 20th January, 2021

What’s the best way to close a business in the UK?

A range of options exist for closing a business in the UK. The supportive regime helps business owners and directors to meet their obligations, and follow stringent rules should insolvency be an issue.

The guiding factor, initially, is the company’s financial position, so if you’ve been struggling with cash flow in recent times, you need to be very careful to determine your company’s status – whether solvent or insolvent.

If you try to close down an insolvent business using a method that’s only available to solvent companies, you could face investigation and run the risk of being disqualified. So let’s look at the best ways to close a business in the UK, depending on the circumstances.  

Voluntary dissolution

When you voluntarily dissolve your company it means that you wind up the business’ affairs over a period of time, and the company name is then removed from the register at Companies House.

This is a process only suitable for solvent companies, however, and solvency is determined in a number of ways. If your company can’t repay its debts as they fall due, or the total of your liabilities exceeds your assets, the business is highly likely to be insolvent.

Obtaining confirmation of this from a licensed professional will ensure you follow the right procedure and protect yourself from any potential issues later on.

Redundancy claims are a very professional company, Caroline who is dealing with our case is friendly, compassionate and very clear in explaining everything during this difficult time. The service we have received has been amazing, Thank you.
Tina Hill
Tina Hill

What if the business is insolvent?

Creditors’ Voluntary Liquidation

If your business is insolvent the best way to close it down is via a process called Creditors’ Voluntary Liquidation, or CVL. This is an official procedure that must be administered by a licensed insolvency practitioner (IP), and involves realising the company’s assets for the benefit of creditors.

Any remaining debt after this has been done is written off, but because you’ve entered CVL you’re not as open to allegations of wrongful trading as you’ve prioritised creditor interests.

Although it might be tempting in this situation to wait for a creditor to forcibly wind up the company, the ramifications of entering compulsory liquidation are serious for yourself and other directors because it means you’ve risked further creditor losses.

Insolvent liquidation and director redundancy

Another reason why Creditors’ Voluntary Liquidation might be the best way to close your business is the fact that redundancy pay is available to eligible company directors under certain conditions.

You need to have worked continuously for two years under a contract of employment, and also meet other eligibility requirements, but by entering CVL you could receive statutory redundancy pay plus other entitlements.

The average claim for director redundancy is £9,000 - a considerable amount, some or all of which could be used to pay for the CVL process if necessary, and help you avoid compulsory liquidation.

Solvent liquidation

A formal liquidation process exists for companies that are solvent, and this is called Members’ Voluntary Liquidation (MVL). Again, a licensed insolvency practitioner must be appointed, but it can be an extremely tax efficient way to close your business in some instances.

Your business assets are sold under this procedure, and as the company is solvent, any remaining funds available after creditors have been repaid are distributed amongst shareholders.  

For more information on the best closure methods for your business, please contact our team of experts at Redundancy Claims UK to arrange a free same-day consultation. We’ll be able to advise on your eligibility for director redundancy, and steer you in the right direction. We operate a broad network of offices around the UK, so you’re never far away from professional assistance.

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