How to close a business using formal and informal procedures
If you’ve decided to close your business, you have several options to choose from. Conditions do apply though, so not every option will necessarily be available or applicable to your particular situation.
Formal ways to close a business
There are two main insolvency procedures for closing a business with debt. If a company cannot pay its creditors it may be closed voluntarily via Creditors’ Voluntary Liquidation (CVL). Or it may be wound up by order of the court following the petition of a creditor under Compulsory Liquidation.
Not all companies entering liquidation have to be insolvent. Directors wishing to close a solvent company, for whatever reason, can opt for Members’ Voluntary Liquidation (MVL).
Informal – applying to be struck off
However, not all companies have to go through formal insolvency proceedings before being dissolved. The informal way to close a company that is not carrying on business or is not in operation is via a voluntary ‘strike off’.
A limited company can request to be struck off the register under Section 1003 of the Companies Act 2006 providing that:
- It hasn’t traded or changed the company name within the last three months
- It hasn’t made a disposal for value of property or rights
- It isn’t the current or proposed subject of any legal proceedings
The striking-off application must be signed by the majority of directors and submitted to Companies House along with the £10 fee. A copy must also be sent to all interested parties, e.g. HM Revenue & Customs, creditors, employees and members, within one week.
When the application has been accepted, Companies House will no longer chase for further compliance and will place a notice in the London Gazette giving at least three months’ notice of the intent to remove the company.
It is important to note that the strike-off procedure is NOT an alternative to formal insolvency proceedings (where appropriate). Even if the company is struck off and dissolved, creditors or others could apply for it to be restored to the register.
We hope you’ve found this information useful. If you’re unsure as to which of these procedures is most suited to your needs, please speak to a Licensed Insolvency Practitioner for professional guidance.