As a director, if you choose to or are made to close your company, you’ll have a lot of aspects to consider. Some of these considerations can be overlooked if creditors are breathing down your neck or you just want to close the company and walk away.
The following guide will detail some important steps which can be forgotten when closing a company.
When should you close your company?
While you may associate a company’s closure with an inability to pay its liabilities, reasons you might want to close your company could include, but are not limited to:
- Changes in the market, meaning your company is no longer viable.
- The company may have fulfilled its purpose or come to the end of its useful life.
- You may wish to retire without succession or a wish to sell the company.
- Your company has become insolvent, with unpayable debts and unmanageable creditor pressure.
What you should consider before closing your company
Before you set your heart on how you want to close your company, you should consider the following:
- Determine if your company is solvent or insolvent
Your company’s solvent position will determine what closure processes are available to wind it down. If your company is solvent with no outstanding liabilities, you could dissolve that company yourself or close through a solvent liquidation, a process managed by a licensed insolvency practitioner.
If your company is insolvent, you should take advice from an insolvency practitioner immediately. These professionals have years of experience and can guide you towards the solution best for your company.
- Settling tax obligations
Along with submitting the company’s final accounts, you should ensure that any amount owed to H.M. Revenue & Customs (HMRC) is repaid. If your company is behind on payments to HMRC, they are likely to pursue your company for that unpaid amount. In the worst case, they may even try to force your company into compulsory liquidation.
- Lease obligations
If the company holds any leases on property, vehicles, or machinery, you should review the agreement’s terms and ensure that these are met before you close the company or that you contact the lease provider and discuss your situation and intentions for the company.
- Redundancy and other employee rights
If your company has employees, you’ll have obligations to them. You should ensure adequate notice is provided before redundancy, make those payments when necessary, and settle any outstanding wages or holiday pay. Redundancy can be a distressing and uncertain time for employees affected, so you should ensure sensitivity and understanding as part of the consultation process.
- Address unpaid Director’s Loans Accounts and Bounce Back Loans
If you have an unpaid Director’s Loan Account, you should address this before you close the company. Outstanding Director’s Loan Accounts can leave you personally liable for your company’s debts if they’re not settled at the time of closure.
If you took out a Bounce Back Loan during the COVID-19 pandemic and the loan is still unpaid when the company is closed, that loan becomes an unsecured debt. While these loans didn’t require personal guarantees, if you misused the loan for reasons outside its intended usage, you could still be held personally liable.
Take insolvency advice before attempting to close the company if it has any outstanding amounts.
- Settle intellectual property arrangements
Before you close your company, you should settle any ownership contracts around intellectual property, including trademarks, patents, web domains and client databases. If your company is insolvent, these intellectual properties might be classified as assets and independently valued and sold, maximising potential returns to creditors.
In conclusion
Regardless of why you decide to close your company, the process will involve a lot of moving parts, all of which need consideration as you go through the motions. Tax, lease, and intellectual property rights need to be settled, and if the company is solvent, you should ensure all creditors, including any Director’s Loan Accounts and Bounce Back Loans, are repaid before starting the closure process.
If your company is insolvent, extra considerations will be needed around dealing with the company’s creditors, and you should speak to a licensed insolvency practitioner to ensure an orderly, structured winding down.