Is It Ever a Good Idea to Close Your Company?

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This content is for informational purposes only and is not intended to provide legal or business advice.

As a director, keeping your company trading is usually one of your top priorities, and the thought of closing your company is likely the last thing on your mind. While it may seem counterintuitive, you should consider when closing your company would be in its best interest. This may be because it has a level of debt that it can’t realistically afford to repay, or if your company is solvent and you want to close it due to personal reasons.

What are your company’s prospects?

The economic landscape is constantly changing, sometimes affecting whether a company will be viable going forward. While you might want to endure and keep trading despite these odds, you may wish to consider closing the company in the following circumstances:

• Your industry has undergone a significant change, which means that your company is no longer viable.
• There’s no market for your company if you were to try to sell it.
• You would prefer to seek employment elsewhere or pivot to a new industry, you could dissolve your company and start afresh.
• The company has come to the end of its useful life.
• A change in your circumstances means you don’t want to run the company anymore.
• You wish to retire from being a director and have no line of succession, or don’t want to sell the company.
• The company is undergoing a merger with another company.
• The company is still active at Companies House but has stopped trading.

If any of the above are true, you could dissolve the company, which is low-cost and suitable for companies with little in the way of assets. That said, before proceeding with a dissolution, you should ensure that:

• The company has no legal action filed against it.
• You haven’t traded through the company for at least three months.
• The company has enough to settle all employment liabilities:
  • PAYE
  • Holiday pay.
  • National Insurance Contributions.
  • Outstanding wages.
  • Redundancy pay.
• The company has filed all statutory returns to the tax office and the register of companies.
• You have closed the company’s bank accounts.

However, if the company has more than £25k in cash and assets, you may be eligible to close the company through a Members Voluntary Liquidation (MVL). This process is a solvent liquidation and can be more efficient than a dissolution while providing additional benefits. The process has other advantages, but also considerations you should factor in before deciding whether it is the best way forward.

Can your company pay its debts?

If your company is struggling to repay its liabilities as and when they fall due, you could consider closing it through an insolvent Creditors Voluntary Liquidation (CVL). Designed for companies that cannot repay their debts and are struggling with creditor pressure, a CVL will see the insolvent company closed through a formal insolvency procedure, allowing you to walk away from it and its debts, reducing the risk of wrongful trading accusations and further legal action.

Previous rescue attempts have failed

As a director, you should always be aware of your company’s solvent position. If you become aware that your company is insolvent, you should take immediate action to remedy the situation. Depending on the level of the company’s debts and the number of creditors, you could start with the intent of rescuing it, with the business continuing after you complete the process. Based on those previously mentioned factors, this isn’t always feasible. The level of debt may be too high, or the company could have deeper-rooted issues that repayment won’t resolve.

If your attempts at rescuing the company have failed, closure may be the more suitable option. If you’re unsure about your options or whether your company is insolvent, you should speak to an insolvency practitioner. These licensed and regulated professionals will assess your company’s circumstances and provide impartial and confidential advice on the best way forward.

Summary

While closing your company can seem like shooting yourself in the foot, there are situations in which closing might be the best option. If the company has few prospects for the future, either due to a change in the market or in your personal circumstances, you may wish to close it. Depending on your company’s situation, this could be through dissolution or entering a solvent liquidation. If your company is insolvent, your creditors could pressure you to repay. Closing the company through a formal liquidation process will help draw a line under its debts and allow you to walk away. Speak to a licensed insolvency practitioner to further discuss your options and find the best way forward for your company.

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