What does it mean to fold a business?

Folding a business is a primary term meaning the company will shut down, either by liquidation or applying for dissolution at Companies House. ‘Folding’ a company is often used when it’s insolvent and directors have no other option but to cease operations permanently.

Folding a business is often a last resort when efforts to turn around the business or find a buyer have been unsuccessful. It can be a difficult and emotional process for business owners, employees, and other stakeholders involved.


What occurs when a business goes under folds?

“Folding a business’ is an informal term that means a business will shut down permanently. It suggests that external factors led to its closure, rather than the owners or directors choosing to close it voluntarily.

So, the question is what could lead to a business shutting down, and what might occur during the closure process?


What are the reasons for a business to fold?

A business may close down for various reasons, but one of the most common is financial trouble. For instance, the company might struggle with overwhelming debt, and facing mounting pressure from creditors, may see voluntary liquidation as their only way out.

At times, businesses may be pushed into liquidation by a creditor seeking to reclaim their funds. In such cases, the Official Receiver (OR) will step in as the liquidator, at least initially. 

Occasionally, the term is also applied to a business that has been removed from the Companies House register, possibly due to non-compliance – like if company directors haven’t submitted required accounts or filings.


What happens during a business’s folding?

If a business closes because of financial troubles but still owes money to creditors, a licensed insolvency practitioner (IP) is chosen to manage the liquidation process. 

Whether it’s compulsory liquidation or voluntary, all the business’s assets are sold to raise money for repaying creditors.

After selling off the assets, the liquidator pays creditors either in full or partially, following a strict order of priority outlined in insolvency law. 

Moreover, an inquiry is conducted into the actions of directors before the business closes, aiming to uncover the reasons behind the company’s downfall.


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Unlocking Potential Drawbacks After Closing A Company?

When a business closes down, it usually leads to job losses and financial setbacks for creditors and other involved parties. 

The liquidator handles any remaining contracts and responsibilities on behalf of the business and deregisters it from Companies House if it’s a limited company.

For further details on why businesses close down and the consequences for those involved, contact our experts at Vanguard Insolvency. 

As insolvency specialists, we offer dependable independent guidance to clients across all sectors. Take advantage of our free same-day consultations and benefit from our extensive network of offices nationwide, ensuring you’re never too far from expert advice.

David Jackson MD
Senior Partner at Vanguard Insolvency Practitioners | Website

I am an insolvency professional with a distinguished career specialising in commercial insolvency, adeptly navigating Creditors Voluntary Liquidation, Company Voluntary Arrangements, and Company Administrations. With a comprehensive understanding of insolvency laws and an unwavering commitment to ethical practices.