In the UK, limited companies can be wound up in several ways. The rules are different if you run a business as a sole trader or operate as part of a partnership, however, so seek professional advice if either of these two statuses applies. In the case of a solvent company that you no longer wish to run as a going concern, it is possible to apply for a members’ voluntary liquidation (MVL). According to Salient Insolvency, a professional insolvency practitioner firm that works throughout the UK, different rules on MVLs apply in England and Wales compared to Scotland, so expert advice will be useful in this regard.
In addition, company directors can apply for a creditors’ voluntary liquidation (CVL). CVLs offer business owners a bit more control about the way the company will be wound up. Typically, this avenue is only possible when the firm has an insolvent balance sheet which means it cannot meet its debt obligations among creditors. Three-quarters of the firm’s shareholders by share value must agree to this course of action, however.
Thirdly, there is compulsory liquidation. Compulsory liquidations occur when a winding up petition has been issued. Although any legal entity can seek a compulsory liquidation order, it is HMRC that seeks the majority of them in the UK. Here’s what is involved with a winding up petition.
- Any limited company with a debt of £750 or more that it cannot discharge can be subject to a winding up petition
- At a shareholders’ meeting, three-quarters of the firm’s shareholders by share value have to agree to a winding up resolution.
- A winding up petition must be completed on a form known as Comp 1.
- The Comp 1 form must then be sent to a court along with another form, Comp 2, that confirms the details in the petition.
- Fees must be submitted to the court for the hearing to take place that will either accept or deny the winding up petition.
- A public advertisement must be placed in the Gazette seven days prior to the court hearing.
- So long as the court agrees to the petition, a winding up order will be made and the court will appoint someone – usually a professional insolvency practitioner – to liquidate the company formally.
- With a liquidator in charge of the company, the directors no longer have any say whatsoever in the way it will be wound up.
- Company directors must cooperate with the liquidator, however, for example by handing over paperwork, contracts and financial records.
- Once a limited company has been liquidated, it will be struck off the official register at Companies House.
- If a liquidator thinks that any or all of the company’s directors were unfit – for example, because there are indications of fraudulent activities – then a ban on working as a director for any other firm may be issued.
- In the most severe cases, directorship bans could last for as long as 15 years.
