How to Wind up a Limited Company? 

How to wind up a company and strike off your business? 

Understanding how to close a company can be confusing. The process varies for solvent and insolvent companies. If you’re considering striking off your business, we assume it’s solvent and can settle all outstanding debts in full.

For UK companies winding up, two main types of voluntary liquidation exist. It’s crucial to know which applies to your situation. If your company is solvent, you’d use a Members’ Voluntary Liquidation (MVL). If you can’t pay your debts, it’s a Creditors’ Voluntary Liquidation (CVL).

 

What is the relationship between winding up and liquidating a company?

Although people often mix up these terms, they represent distinct steps when closing a business. Winding up involves concluding business affairs, while liquidation entails selling a company’s assets, typically the last step before striking it off the register.

1. Liquidation:

Once all enduring relationships are ended and obligations are settled, the business’ assets are sold off (liquidated). 

As per UK law, this process must be overseen by a licensed Insolvency Practitioner. If the business is solvent and all debts are settled, the proceeds are shared among members. 

But if the company is insolvent, the main priority is repaying creditors, even if nothing is remaining to distribute to members.

2. Winding-up: 

Once a decision is made to wind up a company, various relationships and obligations must be ended. Whether the company is solvent or insolvent, commitments to customers, suppliers, and employees must be concluded. All company affairs are organised before liquidation begins.

While it’s true that some of a company’s assets may be liquidated during the winding-up stage, typically, items like equipment and property are liquidated only after the winding-up is finished. 

Due to numerous variables and specific UK laws, only a professional Insolvency Practitioner is qualified to handle the liquidation of a company’s assets.

 

Unlocking the UK law around liquidating a company- be aware! 

When it comes to UK law, one of the initial steps in winding up a company involves the directors’ resolution. This step is particularly crucial if a company is pursuing an MVL because the directors will be required to sign a Declaration of Solvency.

The legal consequences can be severe if anything on this declaration is found to be falsified. With the assistance of a licensed Insolvency Practitioner, directors can prepare the required documents. 

They swear that the company is solvent and expected to have the financial capacity to settle debts within 12 months of the anticipated liquidation date.

The Declaration is initially sworn in the presence of a solicitor and then submitted to Companies House.

 

Members’ Voluntary Liquidation (MVL)

Once the directors have conducted a comprehensive investigation into the company’s financial affairs and determined that it is solvent, the initial step in winding up a company is to convene a meeting of the board. From there, the process progresses through several phases before liquidation and striking the business off the register. 

 

The steps involved in the winding-up process are as follows:

Step #1: Meeting of the Board of Directors to resolve the creation of a Declaration of Solvency. 

Step #2:Holding an Extraordinary General Meeting of shareholders with 14 days’ notice.

Step #3: Liquidator/IP is appointed and will handle statutory filings and notices

Step #4: All taxes are prepared and filed throughout the winding-up process through to liquidation

Step #5: Assets are liquidated per the schedule

Step #6: Shareholder meeting for the final report. 

While it’s not mandatory to appoint an Insolvency Practitioner (IP) before liquidation, UK law is explicit. 

Given the similarity between winding up solvent and insolvent companies, only Insolvency Practitioners are recognised as qualified liquidators due to their expertise.

 

Read More: 

• What is a Validation Order for a frozen business bank account
• The Legal Ramifications of Winding Up a Company With Debts
• Winding up Process and Procedure
• Defending a Winding Up Petition: Can a Winding Up Petition be withdrawn
• Defending a Winding Up Petition

 

 

Creditors’ Voluntary Liquidation (CVL)

If the company is insolvent or if the majority of directors cannot agree on a Declaration of Solvency, the winding-up process would involve a Creditors’ Voluntary Liquidation (CVL) procedure. CVL and MVL are quite similar regarding time constraints and statutory filings, but in a CVL, the focus is primarily on the creditors.

At the end of liquidation, there may be no assets left to distribute to shareholders, especially if an insolvent company seeks to be wound up. 

Additionally, there are instances when a majority of directors have signed the Declaration of Solvency, only to discover later that the company was not solvent. In such cases, an MVL would automatically convert into a CVL.

The key procedural difference is that in a CVL, a meeting with the creditors is necessary because the company is insolvent and cannot meet its debts.

Winding up a company involves more than just deciding to close the doors and cease operations. Even during the initial stages of a CVL, when it’s not mandatory to engage a licensed Insolvency Practitioner, leveraging their expertise is often advantageous.

Every step of the process must be completed promptly and in accordance with rules and regulations. Missing even a single step could result in significant costs in terms of time, money, and potential penalties.

Before determining how to wind up your company and remove it from the books, consult with the experts at Vanguard Insolvency to ensure you’ve made the best choice for your company, its shareholders, and your creditors.