How to Close a Limited Company With Debts

Closing a limited company with debts

There are different ways to close a limited company with debts in the UK depending on whether or not the company is able to pay them off.

The first thing you need to do is find how much your company owes to people, if any, and see if that is more than the company has in assets and/or cash. These company debts may include:

• Outstanding national insurance and PAYE on payrolls
• Corporation tax for the final period
• Overdrafts and bank loans
• Final accountancy fees
• Money owed to directors or shareholders of the company
• Amounts owed to trade suppliers
• Lease agreements or other commitments
• VAT for the final period

Once you’ve established how much the company owes and whether there is enough in the bank to repay them you can decide which would be the best option for closure…

How to close a company that can’t pay back its debts

If the company can’t pay back the money it owes and needs to be closed, it could fall into either an administrative dissolution or liquidation process.

Liquidating a company

Generally if the company has assets that can be sold, then a liquidation would be the best route to take.

In a liquidation an insolvency practitioner will take over the company to keep it running whilst the finances are restructured and the assets sold. Debts are then paid off with any money raised.

Liquidations are usually paid for by the sale of the companies assets and costs can start from around £5000+VAT

There is another way to raise funds to pay for liquidation however, directors of limited companies may be entitled to claim for redundancy pay when their company is struggling and liquidation seems likely.

The average redundancy claim is for around £9,000 and if successful this money can be put towards any liquidation costs.

Read more about redundancy claims here.

Administrative dissolution

However, if the company doesn’t have any assets to be sold, or there are no other funds to pay for a liquidation, such as a redundancy claim, then administrative dissolution could be the best route.

Here an insolvency specialist would help the director (who retains control of the company) to clear any outstanding debt and formally have the company struck off from the Companies House register.

This solution is generally a lot cheaper than a formal liquidation and maintains the directors legal obligations, the cost for these can start from around £250.

Read – Is it Illegal to Dissolve a Company With Debts?

How to close a company that can pay its debts

If you need to close a limited company with debts and it can afford to pay them off then these basic steps would need to be followed:

1. The company should not take on any further business unless it is absolutely necessary.
2. Any loans used by the directors should be repaid.
3. Everyone that the company owes, should be paid.
4. The company bank account should not be closed at least until all debts have been paid off.
5. Any vehicles or equipment used by the company, whether leased or bought, should be dealt with by contacting the respective companies to agree upon ending the contract.
6. A final payroll will be run for all of the staff and the company will need to make a final return of payroll information.
7. The company should have its VAT registration cancelled once a final VAT return is completed.
8. Any of the directors of the company may resign although one should remain to deal with the closure.
9. The final set of accounts should be prepared for submitting. The company will only be able to close down once it has stopped trading so there is no further taxable income.
10. Usually the last payment is that of corporation tax. This should be paid out of the company’s bank account.
11. Capital left over after all the expenses have been paid should be shared amongst the shareholders.
12. Only after three months of the company remaining inactive and all debts are paid will the directors be able to make an application to have the company dissolved (strike off).

Dissolve a company with a DS01 form

If this is all carried out, there should be no formal creditor arrangements or threats of liquidation, and the company can be closed using a DS01 form.

If the company does not fully close down and you would prefer to keep it dormant for use in the future you can do.

However, there is a small annual fee to keep the name of the company reserved (the annual return).

For future purposes it may be beneficial to keep the name as an older company may have more financial credibility.

But if the company remains dormant for several years, the annual fee involved may not be worth it and the company should be closed down through dissolution.

It is almost impossible to have the closing down process completed in a few weeks.

The formalities of closing down a company need to be carried out and it is almost normal for the company to remain dormant for a few months.

Read – How To Close A Limited Company – Guide And Step by Step Process

Need to speak to someone?

If you business is struggling it’s important to seek professional advice, so why not contact us today and take advantage of a free, no-obligation consultation with one of our insolvency advisers.

You can call us on 0800 975 0380 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.