Should You Dissolve or Liquidate Your Company?

Dissolving or liquidating a limited company

We frequently get asked how to close a limited company and although this may seem the best solution, there are some situations where this might not be what the directors or owners actually want to accomplish.

Perhaps they see no way out of closing their business and, if asked, would prefer to keep trading if possible (if this applies to you please click here to find out more about our Business Restructuring service).

However, if closing a business has been agreed by the majority of directors, there are a couple of options you should consider…

What are my options for company closure?

Option 1 – Creditors Voluntary Liquidation:

A liquidation should always be the first closure option explored. However, it is not the only solution.

This is the more costly and more intrusive process, one which essentially removes the authority of a director.

Control of the process and the business concerns are overseen by the appointed insolvency practitioner. (Advantages of Liquidation / Disadvantages of Liquidation)

When your company is in liquidation, no legal proceedings can be taken against it. Providing you have no personal liability for your company’s debts, your creditors will be unable to take any further action against you.

A Creditors Voluntary Liquidation is best used when:

• there are assets available to be sold with a greater value than the cost of liquidation (typically around £5,000)
• there are staff to be made redundant
• the director is able to claim for redundancy

Option 2 – Dissolution (also known as strike off):

A far cheaper option. This can be performed by the director themselves, allowing them to retain control and also ensuring unnecessary costs are not incurred.

The company dissolution process does not demand that 3rd parties are given intrusive access into the business operations and the affairs of the directors personally.

If correctly undertaken, a dissolution has no lasting negative reflection on the directors.

Dissolution should be used:

• when there are little to no assets
• when there are no staff who need to make a redundancy claim
• the director is unable to make a redundancy claim

What is a Company dissolution?

Companies that are formed and registered within England and Wales have a record of their existence kept at Companies House.

While this record is in place the company is considered operational and valid as such it is due to maintain records and upkeep running costs as is appropriate. Dissolving a company is the legal act for the removal of a company from the register.

To qualify for dissolution, the company cannot have traded, changed its name, sold assets, or engaged in any kind of activity unless it is for the purpose of striking off in the previous three months.

A company also cannot be dissolved if it is currently in administration, subject to a scheme of arrangement or CVA, or has a receiver or manager appointed over the company’s property.

Unfortunately, there are many websites that state that you can’t dissolve a company with debts. This is incorrect.

There is no legislation which says that you can’t dissolve a company that has debts. However, the process does need to be carried out in the correct way to make sure that all statutory obligations and requirements are met.

You can dissolve a company with a Bounce Back Loan as the loan will be treated as an unsecured one, but there are additional processes that need to be gone through.

What does dissolution mean for directors?

When a company is dissolved it has reached a point where its debts have been remunerated in full or informally negotiated to the satisfaction of the creditors. This means that the debt is cleared.

At the final point of dissolution, the company’s assets, if there are any, are absorbed by the crown.

What are the benefits of dissolution (strike off)?

• Immediate steps can be taken to start closing your company.
• There is no formal meeting of creditors.
• It’s possible to write off thousands of pounds of bad business debt.
• Not as intrusive as formal liquidation procedures.
• You retain final control of the process.
• It’s cheaper by far than liquidation.

See if your company qualifies for dissolution by taking our free online test now – Dissolution Test →

What are the disadvantages to dissolution?

There can be dire consequences if you provide any false information (deliberately or otherwise) during your application or fail to notify an interested party of your decision to dissolve the company. This can potentially lead to disqualification as a director, a considerable fine or, in extreme cases, imprisonment.

If any creditor believes your business has not been closed down correctly or has evidence to argue against the closure, they can object to the dissolution in the first instance or even appeal for your company to be restored to the Companies House register.

If the restoration is successful this would then allow them, and any other outstanding creditors, to chase your company for any unpaid debts.

Get free advice on dissolving your company

If you business is struggling it’s important to seek professional advice, so why not contact us today and take advantage of a free consultation with one of our insolvency specialists. You can call us on 0800 975 0380 (free form mobiles and landlines) or email [email protected]

We will be able to assess the situation and then offer advice on appropriate solutions depending on your specific situation and requirements.

You can then decide whether you want us to help you with your problems. With offices across the UK, you’re never far away from expert and confidential advice.