How to Wind Up Your Company – Quick Guide for Directors

If you are looking to find out how to wind up a company, we hope this post will be useful. ‘Winding up’ is a widely used term that you have probably come across before, however it can mean a few things. 

On one hand ‘winding up’ can be used to refer to the relatively informal process of finalising contracts or agreements with a company’s interested parties.

Alternatively, it can be used in reference to a ‘winding up resolution’, which leads to the formal liquidation of a company.

Jargon buster – some common terms explained

Before we go any further there are a few terms which need to be clarified:

Winding up

When a company has or plans to cease trading, there are a number of obligations and relationships that must be dealt with and terminated before the company is able to close. This is the case whether the company is insolvent or solvent.

These relationships can also be referred to as ‘company affairs’. Dealing with these relationships is ‘Winding Up’

Winding up resolution, or ‘special resolution for winding up’

If the company is to close via liquidation, the majority of shareholders (over 75% by share value) must agree to this by signing a winding up resolution at an AGM (Annual General Meeting).

Liquidation

Once company affairs have been dealt with, all company owned assets are liquidated (sold and proceeds distributed amongst company creditors). This process is handled by a licensed Insolvency Practitioner. If all debts have been satisfied, the proceeds will be shared between company members.

Legalities

As mentioned above when you are learning about how to wind up a company, there are certain declarations that must be signed by company directors and shareholders at the beginning of any liquidation process.

Another example of this is a ‘declaration of solvency’, which is required in cases where an MVL (Member’s Voluntary Liquidation) is being entered.

This is because it declares that the company has satisfied all outstanding debts; if it is found later down the line that the company was in fact insolvent and the company’s members have benefited from the company closure without addressing outstanding debts, there will be serious ramifications for the director.

Members Voluntary Liquidation

If your company is solvent you will want to know how to wind up a company via a Members Voluntary Liquidation process; we’ve outlined the steps below:

1. Board of Directors meet and sign a Declaration of Solvency in the presence of a solicitor
2. EGM (Extraordinary General Meeting of shareholders is held (they must have 14 days’ notice of this)
3. The IP (Insolvency Practitioner who is acting as liquidator) is appointed – they handle statutory filing
4. All taxes are prepared and filed
5. Assets are liquidated
6. Shareholders meet for the final report

As you can see, it’s not essential that an Insolvency Practitioner is appointed at the first step. However, it is useful to do so to ensure that procedures are followed correctly.

Creditors Voluntary Liquidation

If you need to know how to wind up a company that is insolvent, this process is appropriate.

The statutory filings involved are similar, but the process must be geared towards benefiting company creditors in any way possible (as is the case with any insolvency process):

1. A meeting of shareholder is called – 75% of shareholders (by value) must agree to pass a winding up resolution
2. A licensed IP (Insolvency Practitioner) is appointed
3. Companies House is informed of the winding up resolution, which will in turn be advertised in the Gazette, an online publication
4. Creditors are informed – ‘deemed consent’ can now be assumed if creditors do not object within a certain amount of time, so a physical creditors meeting is not always essential. A Statement of Affairs must be sent to creditors when they are informed.
5. The IP liquidates assets and distributes the proceeds among creditors

Find out more about which type of liquidation you need to use

Dissolution

There are several ways to fund a liquidation process that do not require directors to be able to find the money to pay for a liquidation find out more about this.

Having said this, if you are unsure how to wind up a company with no assets or cash in the bank, and no parties are entitled to redundancy payments, dissolution is another option worth looking into.

This is a far cheaper process to fund, as an Insolvency Practitioner does not need to be appointed. The cost of this will depend on the amount of company creditors and assets, as well as how long the ‘winding up process’ will take prior to closure.

1. All parties are informed of the intention to dissolve the company
2. Any contract termination fees will be established and a full creditors list drawn up
3. Assets will be sold and proceeds distributed between company creditors
4. Once a period of 3 months has passed since the date that the company ceased to trade, the dissolution application can be submitted to Companies House
5. This application will be advertised in the gazette
6. Providing that no creditors object to the proposal, the company will be closed around 2 months from this date

There are many advantages to this method, as there are essentially a lot less boxes to tick.

You should be aware, however, that your statutory requirements remain the same and of course have the same ramifications. The liquidation process therefore offers a more robust protection against creditors, as the liquidator is able to legally force a ‘freeze’ of creditor action.

Next steps

We hope that you are now aware of the options available to you; ‘how to wind up a company’ is not always a simple question to answer.

At Forbes Burton we tailor each phone call and piece of advice to the individual director and company that we are discussing.

To have an informal and confidential chat with one of our experienced advisors, get in touch now on 0800 975 0380.