Winding up a business is not necessarily the same thing as liquidating one. Winding up a company involves getting its affairs in order and ceasing trading. Liquidating a company is a formal process which can only be entered into with a licensed insolvency practitioner who will deal with the company’s finances and look to sell any assets.
It is possible to wind up your company and then apply to have it struck off the register at Companies House; this process is sometime referred to as dissolving a company. This process does not require an insolvency practitioner to be appointed as the directors can complete it themselves through the submission of a DS01 form. Striking off your company costs £10, payable to Companies House, and many directors see this as an easy and cheap way to close down their struggling company. However, you should be warned that there are serious drawbacks to going down this route.
Company dissolution, or strike off, is a process designed with solvent companies in mind; therefore businesses that have outstanding debts should be extremely cautious when opting for this method. Once a company is struck off from the register, it ceases to legally exist. Due to this, outstanding creditors are unable to chase the dissolved company for repayment of the money it owes. It is therefore in the interest of the creditors to oppose your application to strike off your insolvent company. If Companies House receives an objection they will suspend your strike off and you will have to continue to reapply. Creditors can object as many times as they want, meaning striking off your company may simply not be possible. Even if you are successful in having your company struck off, creditors can, at any point, demand that it is reinstated to the register in order for them to collect the money your company owes.
Even though company dissolution is a cheaper option than liquidation, the expert help and guidance an insolvency practitioner can give you at this time is often well worth the cost. Once you know your company is insolvent, you have a number of duties in your role as director. These include ensuring your creditors’ interests are prioritised and that any payments you make while insolvent are fair and do not show bias towards any individual or company. Deliberately choosing to pay one creditor over another is known as making a preference payment and is a breach of your duties as director.
However, once you enlist the help of an insolvency practitioner they will take over the running of the company and ensure operations are brought to a close in the most appropriate manner possible. They will facilitate the sale of company assets, distribute the funds according to a legal hierarchy, and notify any outstanding creditors that the company is to be liquidated. Having an insolvency practitioner on board is the best way of preserving your personal position, as well as maximising the returns for your creditors.
Another less understood downside of company dissolution is that dissolving your company using the DS01 form makes you ineligible for director redundancy. It is only by formally liquidating your company through a Creditors’ Voluntary Liquidation (CVL), that you retain the ability to claim for redundancy and other statutory entitlements.
As long as your company has been incorporated for at least two years, and you are paid through the PAYE system, it is highly likely you will qualify for director redundancy. The amount of redundancy you can claim will be determined by using a calculation which takes into account your age, salary, and how many years you have been working for your company. Your entitlements are exactly the same as for any other employee, with years’ service is capped at 20 years and the maximum weekly amount you can claim set at £508. On top of redundancy, you may also be able to increase the amount through other statutory entitlements such as notice pay, holiday pay, and unpaid wages. Although these additional elements will be subject to tax at your usual rate, they can still substantially increase the total value of your claim.
The expert team at Redundancy Claims UK have extensive knowledge of the Employment Rights Act 1996, and through years of working with the Redundancy Payments Office, we know how to put together a redundancy claim application which will have the maximum chance of success. If you are considering liquidating or dissolving your limited company, ensure you speak to Redundancy Claims UK. We can assess your eligibility over the phone, and should we feel you have a legitimate claim, we can tell you know how much money you may be entitled to. Call our team today on 0800 063 9261 or click here to use our claims calculator.