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Closing your business

The way in which you close your business is likely to be largely dependent on the company’s financial status, and which particular direction you plan to move forward in. Regardless, a closing company has certain legal responsibilities towards its employees, including yourself as a director-employee.
Closing your business: obligations to employees

Where employees (including yourself) are being made redundant due to the closure of the business, the company is liable to ensure that:

  • All outstanding salary payments are paid up to date
  • Employees are paid for any outstanding holiday days owed
  • Employees are given sufficient notice, or payment is made in lieu of notice.

In addition, those employees who have worked for the company for two years or more will be entitled to either:

  • Their contractual redundancy pay (as defined by their individual employment contracts) or
  • Statutory redundancy pay

This is a legal requirement and obligation of the company. Find out how to calculate statutory redundancy entitlements here.

Whether or not the company can afford to meet its obligations with regards its employees will likely dictate or be a strong indicator for the way in which it the company should be closed.

How to close your limited company

Option 1: Creditors’ Voluntary Liquidation

The vast majority of cases we work with are those companies that are going into Creditors Voluntary Liquidation (CVL). This is a mechanism for closing down a limited company that is no longer viable moving forward and has outstanding debts, whether to other creditors and/or employees for outstanding employment entitlements. CVL is a formal legal procedure, and as such must be carried out by a licensed Insolvency Practitioner (IP).

If you don’t have a liquidator in mind, we are happy to recommend one that we work with. In any event, they will be happy to provide a quote and you can shop around.

Where the company owes money to its employees for the employment entitlements listed above at closing, all employees will become preferential creditors in the company’s liquidation. As such, they will be entitled to apply to the National Insurance Fund via the Insolvency Service to claim back any outstanding entitlements they are due once the company goes into CVL. You can find further information on the process and the timescales involved here.

Option 2: Dissolving a limited company

This is a very straightforward, informal process in which the company’s directors apply to Companies House themselves to have the company struck off the register. This costs just £10 and only requires a DS01 form to be filled out and filed at Companies House.

There are several requirements that must be met in order for the company to be struck off.

  • The company must not have traded or carried on any business activity except for those involved in concluding the company’s affairs and striking the company off the register, in the 3 months prior to dissolution
  • It must not have changed its name in the last three months
  • It must not be the subject of any insolvency proceedings, such as liquidation
  • Or still be subject to any compromises or agreements with creditors, such as a section 895 scheme, CVA, any HP agreements or leases
  • All outstanding salary payments and redundancy payments must have been made to employees
  • There can be no legal actions outstanding against the company

In short, for the company to be struck off it must have settled its final affairs, including its obligations towards its employees. If there are outstanding employment entitlements owing to employees, the company should not be struck off the register. In such cases, a Creditors Voluntary Liquidation (CVL) is likely to be more appropriate.

Option 3: Members Voluntary Liquidation

This is the formal mechanism for closing down a solvent company. In such cases, the company is required to ensure that all employees’ entitlements, as outlined above are settled prior to the company’s closure and distribution of assets.

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01325 740835

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