Closing a limited company is never an easy decision, especially when there are outstanding debts involved.
It’s important for company directors to understand the process and their responsibilities in order to make an informed choice.
This article will guide you through the different aspects of closing a limited company with debts and the implications it may have on your future business endeavours.
We’ll cover whether it’s possible to close a company with debts, including those owed to HMRC, how to go about it, and whether you can start again afterwards.
Can You Close a Limited Company With Debt?
Yes, it is possible to close a limited company with debt, but the process and your obligations will vary depending on the financial situation of the company.
If the company is solvent (able to pay its debts), you may be able to use a Members’ Voluntary Liquidation (MVL) to close the business.
This process allows the company’s assets to be distributed amongst its creditors and shareholders.
However, if the company is insolvent (unable to pay its debts), you’ll need to consider a Creditors’ Voluntary Liquidation (CVL) or compulsory liquidation.
In a CVL, the company’s assets are sold to pay off its debts, and the company is then dissolved.
Compulsory liquidation, on the other hand, is initiated by a creditor through a winding-up petition and involves a court-appointed liquidator taking control of the company’s assets.
Please check out this page if you are interested in our limited company dissolution service.
Can You Close a Limited Company With Debts to HMRC?
Closing a limited company with debts to HM Revenue & Customs (HMRC) is a complicated matter that requires careful consideration.
As a preferential creditor, HMRC has priority in receiving payments when a company is closed, regardless of whether it undergoes liquidation or dissolution.
In the case of liquidation, an insolvent company can address its debts to HMRC through a Creditors’ Voluntary Liquidation (CVL) or compulsory liquidation.
Both processes involve selling the company’s assets to pay off outstanding debts, including those owed to HMRC.
However, the CVL is initiated by the company directors, whereas compulsory liquidation is initiated by a creditor, such as HMRC, through a winding-up petition.
Dissolution, on the other hand, is a process of closing a company by removing it from the Companies House register.
While this method is typically used for solvent companies, it may be possible to dissolve a company with debts to HMRC if an agreement is reached with the tax authority.
This could involve setting up a payment plan or negotiating a settlement.
It is crucial to engage in open communication with HMRC and seek professional advice to ensure that the dissolution process complies with legal requirements and that all obligations are met.
NOTE – You might find this article useful. It looks at if you can dissolve your limited company with a bounce-back loan.
How To Close a Limited Company With Debts Step-by-Step
If you’ve decided to close your limited company with debts, follow these steps:
- Speak to the Marchford team of experts: We can provide advice on the best course of action and guide you through the process.
- Choose a liquidation method: Determine whether your company is solvent or insolvent, and decide on either a dissolution or liquidation.
- Notify creditors and shareholders: Inform all relevant parties of the decision to close the company and the chosen method of closure.
- Appoint a liquidator: If you’re pursuing a CVL or MVL, appoint an IP to act as a liquidator. If you are dissolving, then submit your DS01.
- Sell company assets and distribute proceeds: The liquidator will sell the company’s assets and use the proceeds to pay off creditors in order of priority.
- Dissolve the company: Once all debts have been addressed, the company will be dissolved, and its name will be removed from the Companies House register.
(The best place to start is by contacting our team here at Marchford).
Can You Start Again After Closing a Limited Company with Debts?
Yes, you can start a new business after closing a limited company with debts.
However, it’s important to consider any consequences or restrictions that may have arisen from the previous company’s closure.
If you were found to be acting irresponsibly or fraudulently as a director, you could face disqualification or personal liability for the company’s debts.
Starting a new business after closing a company with debts requires careful planning and adherence to legal requirements.
It’s crucial to ensure that any outstanding issues from the previous company have been resolved before moving forward.
In some cases, you may need to wait for a specified period before you can act as a director again.
It’s also important to learn from past mistakes and implement better financial management practices to prevent similar issues from arising in your new venture.
NOTE – You might also find this post useful. It explains how to close a company without paying tax.
Final Notes On Closing Ltd Companies With Debts
Closing a limited company with debts can be a complex process, but understanding your options and seeking professional advice can help you navigate the challenges involved.
Whether your company is solvent or insolvent, addressing outstanding debts, including those to HMRC, is critical to protect your interests and comply with legal requirements.
If you decide to start a new business after closing a company with debts, make sure to learn from your previous experiences and adhere to any restrictions that may apply to ensure a successful and compliant future.
If you’re considering closing your limited company with debts, don’t hesitate to consult with a licensed insolvency practitioner to discuss your options and find the best solution for your specific situation.
Click this link to learn how we can help you close your limited company, even with debts.
