Closing a company with debts and no assets

Liquidate a company with liabilities and assets

In the UK, stringent regulations surround the closure of limited companies, with a crucial consideration being the company’s indebtedness. Solvent companies capable of fully repaying their debts have the option to close through dissolution or a formal process known as Members’ Voluntary Liquidation (MVL).

Directors must exercise caution when determining their business’s financial standing, as employing the incorrect closure method may lead to severe consequences, including disqualification.

For an insolvent company, closure must occur through Creditors’ Voluntary Liquidation or CVL. This involves selling business assets to repay creditors to the extent possible. 

However, what if your insolvent company has debts but no assets and needs to cease operations?

No asset liquidations

If your company lacks assets that could be sold for the benefit of creditors, it may still be viable to opt for Creditors’ Voluntary Liquidation. Despite being a formal process with associated professional fees, if you and your fellow directors can finance the procedure yourselves, choosing this path enables you to fulfil your legal obligations to creditors.

Liquidations with no assets typically involve lower fees compared to those involving multiple assets. This is because managing the business’s affairs is simpler, leading to a significant reduction in the practical and administrative aspects of the process.

Initiating Creditors’ Voluntary Liquidation involves convening a shareholders’ meeting to pass a special resolution. The resolution must secure at least 75% of shareholder votes (by the value of shareholding) to be approved.

 

Director redundancy and no asset liquidations

An alternative means to finance Creditors’ Voluntary Liquidation when your company has debts and no assets is by claiming director redundancy. If you or other directors have served the limited company for two years or longer, you may be eligible to file a claim.

Several conditions apply to assess eligibility for director redundancy, including:

• Receiving a regular salary under PAYE
• Operating under a written, oral, or implied employment contract
• Engaging in work for 16 hours per week or more
• Fulfilling a role that extends beyond advisory duties
• Being owed money by the company, such as your initial investment

The knowledge of the right to claim director redundancy isn’t widespread, but Vanguard Insolvency can assist you in determining your eligibility for redundancy pay and other statutory entitlements as a company director. 

Read More:

• When will Companies House not allow you to close your limited company
• What should I do with my company if I am retiring
• How much does it cost to close a company in the UK
• Should I close my company or make it dormant
• What tax do I have to pay when closing my company

What if a no-asset liquidation isn’t possible?

If you find yourself in a situation where you cannot claim redundancy pay to cover the costs of a no-asset liquidation and are unable to personally fund the process, you may have to wait for a creditor to initiate the compulsory winding-up of the company.

This scenario introduces a significant risk of misconduct or wrongful trading allegations. While it doesn’t impose a direct cost on the business, it can result in potential costs for yourself and any fellow directors. The Official Receiver conducts thorough investigations into the circumstances leading to insolvency, and, under certain conditions, can hold directors personally liable for some of the business debts.

For detailed guidance on closing a company with debts and no assets to sell, please contact our partner-led team. Vanguard Insolvency is composed of insolvency experts who can offer independent, confidential professional advice. With a network of local offices nationwide, we can also provide a free, same-day consultation to expedite the resolution of the situation.