Overview of winding up a business  

If your company is insolvent – i.e. it doesn’t have enough money to pay off its debts – there are several different possible outcomes. Some of these could involve allowing the company to survive (informal arrangement, company voluntary agreement, administration) while others are primarily aimed at paying off creditors (liquidation, receivership), often with result that the company has to be wound up [cross reference with insolvency overview]. 

There may be times however, when your company is solvent but you want to close it down anyway. There could be a number of reasons for this: shareholder retirement, internal disputes, falling demand means it will not be viable in the future, or the company may have been set up for a short-term project and is now simply no longer needed. 

Issues to consider when winding up a solvent company

However, because a company is a separate legal entity there are several procedures you need to go through to finalise its affairs before you can be properly wind it up. The main issues which need to be considered and dealt with are:

• The finalisation of the accounts and tax position.
• The payment of all outstanding liabilities (i.e., creditors, tax and VAT, bank loans, rental and finance agreement settlements).
• The disposal or transfer of the assets – these belong to the company and not the directors or shareholders so legal title must be passed as well as consideration/value in most cases.
• Employees - if you have employees, you must safeguard their rights, finalise their pay and deductions, and issue their P45 form. Redundancy payments may also have to be made [cross reference with redundancy overview].
• The legal formalities of having the company dissolved and struck off the Register at Companies House.

Ways of winding up a solvent company.

There are two main ways of winding up a solvent company and the path you choose will mainly depend upon issues such as the complexity of the assets involved, whether there are opportunities for effective tax planning and if there is consensus among the shareholders.

1. Voluntary striking off
2. A members’ voluntary liquidation 

Voluntary striking off

If the affairs of your company are fairly uncomplicated, the employee situation not relevant or sorted, creditors paid off and the final tax liability agreed and settled, your best way forward is to make an application to the Registrar of Companies to have it struck off the Register. This would suit, for example, a sole trader who wants to revert to PAYE or self-employed status; a ‘shelf’ company; or a company which has been dormant for some time. The steps you need to take in this situation include:

• Sending completed final corporation tax return to the tax office together with any claims for refunds.
• Paying off all creditors
• Notifying PAYE and VAT offices
• Closing the company bank account
• Filing final accounts with Companies House.
• Filling out Form 652a asking for dissolution and sending it to Companies House together with the required fee (currently £10). Copies of the form must be given to the following groups within 10 days of the application being submitted: members, creditors, employees, managers or trustees, and directors who have not signed the form.

A members’ voluntary liquidation

If your affairs are more complex, with numerous assets and issues to consider like properties, investments and/ or land-holdings then a Members' Voluntary Liquidation (MVL) would probably be the better option. One big advantage of using the MVL procedure is that is can provide significant tax planning opportunities which can see tax liabilities for higher tax payers reduced from 40% to 10%.

The procedure requires a statutory declaration of solvency by the company directors and is commenced via a shareholder resolution. Although the MVL procedure is only available for solvent companies, MVL involves calling in a licensed Insolvency Practitioner (IP). Their job is to sell off the company’s assets, sort out all creditors’ claims and return whatever is left to the shareholders of the wound up company. The IP will decide who gets what so it prevents any squabbling between shareholders that would inevitably arise if they had to sort it out themselves. A final meeting is summoned by the liquidator when his/ her duties have been carried out and the company would then be dissolved three months after the final meeting.