How to shut down a limited company

How to shut down a limited company

How to shut down a limited company

Every week now I get calls from people asking me how to shut down a limited company. The global downturn has finally caught up with some companies.

The reason why it is taking some businesses longer than others to seek advice after they first encounter trouble can be for a number of reasons. It may be because the shareholders and directors (in a small company often the same people) have dipped into their own resources to keep the company going through the hard times. It could be because they have actually increased there creditor ledger in the expectation of a pick up in trade. For whatever reason eventually a business burdened with debt and with little in the way of significant orders will have to face reality and seek insolvency advice.

I advocate three main ways to deal with a debt ridden company.

The easiest and most straight forward is a CVL or creditor's voluntary liquidation. In this scenario, a meeting of the companies creditors is called and a statement of the affairs of the company presented to them which indicates that the company is insolvent and cannot pay its debts and therefore has to be closed. The creditors vote for this to happen and the Insolvency Practitioner then completes all the paperwork and carries out the task of shutting down the company. If there are assets of the business worth any value he will seek to realise these for the benefit of creditors. Former directors may if they wish buy assets from the liquidator and carry on business again.

An alternative is a CVA or company voluntary arrangement, whereby the company proposes a dividend repayment to creditors based on achievable profits over a number of months. This is only viable of the company can make profits sufficient to make a decent payment into a scheme each month. Very few companies would be capable of this.

A final alternative would be an administration, whereby the company would get protection from its creditors whilst it sought the best solution from its problems. Businesses with a need to continue to trade and keep good will could seek this solution. It is quite expensive but can preserve a business as a going concern pending a sale. It is often the solution of choice for High Street retail names.

Dependant on your type of business, and the level of your trading activity any or all of the above solutions may be of benefit to a struggling business

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