The five ways a company can be shut down

Posted: Tuesday, 8 December 2015 @ 17:47

Stop Trading and Strike Off

The simplest, and cheapest, way to shut down a company is to stop trading and then to apply to Companies House for the company to be struck off the Register of Companies.

After 3 months have passed without the company trading, carrying on any business, undertaking any transactions or certain other activities, the directors can apply to Companies House for it to be struck off by completing a form and paying the fee (currently £10). All the company’s affairs, such as closing bank accounts, should be dealt with before making the application.

Check on the Companies House website for guidance on how to do this.

Companies House will advertise the application and, if no one objects, will strike off the company after at least 2 months have passed since the advertisement.

Solvent Liquidation

This is technically called a ‘Members’ Voluntary Liquidation’ and is a more formal procedure than Striking Off and may be necessary if there are assets to collect in and then distribute. It can only be used if the company is solvent (i.e. can pay off its debts in full) and will involve the appointment of an Insolvency Practitioner.

The directors must sign a ‘Declaration of Solvency’ and then the Shareholders must pass a resolution to wind up the company.

A Liquidator will then be appointed to collect in the assets, pay creditors and then distribute the surplus to the shareholders.

Insolvent Liquidation

This is technically called a ‘Creditors Voluntary Liquidation’ and is used when the company is insolvent. Like a Solvent Liquidation, it will involve an Insolvency Practitioner.

The directors propose liquidation and then 75% of the shareholders (by value of their voting powers) must pass a Winding Up Resolution. A Liquidator is then appointed to collect in the assets and distribute any funds obtained to creditors in accordance with certain priorities.

Court Winding-Up by a Creditor

A creditor can apply to the court for the company to be wound up if they are owed more than £750 and the company cannot afford to pay its debts. After 7 working days following the service of the paperwork, the winding up proceedings can be advertised. This usually has the effect of stopping the company trading as their bank account will be frozen. Then a ‘Winding-Up Order’ is made and a liquidator is appointed. As in other liquidations, the Liquidator will collect in assets, and distribute funds to creditors in accordance with certain priorities.

Court Winding-Up by Shareholders

A shareholder can often issue winding-up proceedings themselves on the basis that it is ‘just and equitable’ to do so. This is useful particularly in instances where there is deadlock between directors so that no decisions are able to be made. It can also be used where shareholders have grievances that cannot be resolved in any other way.

Like, a Creditors’ Winding-Up, once the order is made, a liquidator is appointed who will collect in assets, and distribute funds to creditors in accordance with certain priorities.

How to Get the Advice You Need 

  • If you and your fellow directors have decided to stop trading and apply to Companies House for the company to be struck off, then check on the Companies House website.
  • For a Solvent Liquidation or an Insolvent Liquidation, you will need to appoint an Insolvency Practitioner.
  • For Court Winding-Up procedures, whether you wish to start the procedure or defend a petition by a creditor, you will need legal advice from a solicitor. Get in touch and we can advise on how best to solve your issues.
  • If you’re in dispute with your fellow shareholders or directors, you should get legal advice so you can decide on a strategy to follow to either resolve the dispute in the best way possible. 

Gary Cousins
Business Solicitor 

Blog by Gary Cousins
Gary has been providing legal advice to shareholders, directors and business owners for over 25 years. Specialising in dispute resolution Gary is based in Birmingham with clients throughout the UK and overseas. View profile
Call Gary on +44 (0)121 778 3212 or by email
This blog is not intended to constitute legal advice, nor is it intended to be a complete and authoritative statement of the law, and what we say might be out of date by the time you read it. You should always seek legal advice to confirm whether or how any information in this article applies to your particular situation. We offer a free telephone consultation to discuss your particular circumstances.

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Thank you. Your response is great, very straight to the point! Hopefully this will bring an end to the matter. I will certainly be recommending your services as I am very impressed with the prompt dealing of this matter.
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