Accountants are an invaluable component of a company’s success. An accountant can keep a company on the straight and narrow in terms of financial stability, easing one of the heaviest burdens directors must bear. Given the vital role accountants have in a company, it is no understatement to say that a reliable accountant can mean the difference between a company’s success, or its failure.
When a director is ready to close their company, they will often go to their accountant first to get advice on the best way for them to do so. They might be closing the company because it has served its purpose and they want to retire or take up a PAYE-role; or the company might have debts it cannot pay.
Their accountant will be able to help the director to some extent. However, if the company needs to be liquidated, then a licensed insolvency practitioner will need to be appointed.
In this article, Clarke Bell (as a firm of licensed insolvency practitioners) will look at the role accountants play in the process of closing a company down, as well as the different options for closing a company.
How do I close my company?
The best method of closing a company depends on the specific circumstances that company faces. For example, closing a solvent company is fairly simple, and is essentially a choice between two options – Members’ Voluntary Liquidation (MVL) or company dissolution. Using either procedure, a solvent company can be neatly wound up and removed from the Companies House register.
Closing an insolvent company is a bit more complicated. While there are still voluntary methods of doing so, directors have a wider set of factors to consider, with obligations to creditors being one such factor. A Creditors’ Voluntary Liquidation (CVL) is a procedure designed specifically for insolvent companies and their unique needs, and acts as an effective framework to close such companies. Due to the complexities of the procedure, and the legality surrounding closing an insolvent company, it must be done by a licensed insolvency practitioner.
Can my accountant close my company?
Unless your accountant is also a licensed insolvency practitioner, they will not be able to liquidate your company. You will need to appoint a licensed insolvency practitioner to carry out the liquidation. (Most insolvency practitioners are also qualified accountants.)
Although your accountant can’t close your company, they can help you along the way. Your accountant can be a precious guide when closing a company, insolvent or otherwise, and can greatly assist when dealing with certain issues. For example, your accountant can help gather and compile your company’s financial documentation, which can help make for a swifter and more straightforward liquidation procedure. Your accountant can also assist when interacting with HMRC, and help maximise tax efficiency when drawing money out of your company.
Options for closing a company
Your company’s situation will influence which procedures are available to you, and which would be likely to earn you the best outcome. When closing a solvent company, the two main options are Members’ Voluntary Liquidation and company dissolution. For insolvent companies, Creditors’ Voluntary Liquidation is the main voluntary procedure, though compulsory liquidation can also result in the closing of a company.
Let’s consider these procedures in more detail.
Members’ Voluntary Liquidation
The MVL procedure is the most effective methods of closing a solvent company with large reserves of retained profits. This is due to the impressive tax efficiency of the MVL procedure, allowing directors to save on their tax bills and enjoy more of the fruits of their labours.
The MVL procedure can be voluntarily initiated by directors, who must appoint an insolvency practitioner to enact the procedure. This insolvency practitioner will then move to liquidate the company and distribute the company assets amongst the shareholders. Once all distributions are made, the company will be wound up and struck off from the Companies House register. Directors will then be free to retire or pursue other ventures.
Unlike other forms of liquidation, these distributions will be taxed under Capital Gains Tax (CGT) rates, which are considerably lower than Income Tax rates featured in other options. Additionally, eligible directors may apply for Business Asset Disposal Relief (BADR), formerly known as Entrepreneurs’ Relief. This relief entitles directors to further tax savings on gains up to a lifetime limit of £1 million. BADR, combined with the lower CGT rates, is why the MVL procedure is so tax efficient.
The tax savings more than outweigh the cost of the MVL. This is why it is such a popular option for successful companies.
An MVL is an excellent option for companies with assets typically over about £25,000. For companies with fewer assets, dissolution may be the preferable alternative.
Where MVLs are tax efficient, company dissolutions are exceptionally cost-effective. Dissolutions can be voluntarily initiated by directors of solvent companies with the board’s approval, and begun in earnest with the submission of a DS01 form. This form costs £10 or £8, if submitted in paper format or through the online portal, respectively. If approved, the intended dissolution will be published in the relevant Gazette, notifying any third parties left in the dark. These third parties, such as outstanding creditors or uninformed shareholders, can then lodge an objection, stalling or outright reversing the attempted dissolution.
If no objections are made, the company can be dissolved. Directors will have time to remove all assets from the company and empty its accounts. Once this window of time closes, the company will be fully dissolved, ceasing to exist as a legal entity. Should any assets remain in the ownership of the company, they will be considered “bona vacantia”, or without an owner. Such assets will be transferred to the Crown, so if you’d rather avoid a donation to the public purse, you’d best act swiftly once your company’s dissolution is approved.
Creditors’ Voluntary Liquidation
The CVL procedure is one of the most reliable tools available to directors of terminally insolvent companies. Such companies have little or no chance of recovery, meaning other insolvency procedures are largely off the table. By closing their company through a CVL, directors can enjoy a series of advantages, and the relative comfort of closing voluntarily.
When using a CVL, directors may appoint a licensed insolvency practitioner of their choosing to the role of liquidator. In this position, the liquidator will take control over the company, ensuring any assets are disposed of for the highest possible price, and the company is wound up efficiently. Any gains made from the liquidation will be distributed amongst outstanding creditors, and the company will be terminated once all funds are dispersed. If any debts remain outstanding beyond this point, they will be written off, barring debts secured by personal guarantees.
If you would like more information about Creditors’ Voluntary Liquidations, read our complete guide to the procedure.
Compulsory liquidation is the involuntary method of closing an insolvent company. While it does reach the same result as a CVL, it offers none of the same benefits. Directors will not be able to choose an insolvency practitioner, nor will they benefit from the perception of having acted in the interests of their company’s creditors. This can cause trouble if directors are accused of misconduct, as mounting a defence is all the more difficult. As such, compulsory liquidation is best avoided where possible in favour of another insolvency procedure.
Let Clarke Bell help you
If you want to close your company, you should first speak to your accountant for advice. When the best option is going to be to liquidate the company, then you will need to appoint an insolvency practitioner. That is where we can help you.
We will work with your accountant to liquidate your company. We can help whether it is with a solvent liquidation (MVL) or an insolvent liquidation (CVL). You will have the added comfort of having your trusted accounted involved in the process. They will be able to supply us with the financial information we will need to liquidate your company as quickly and efficiently as possible.
For over 29 years we have been helping directors to find the most effective method of closing their company. We can do the same for you.
Contact us today for your free advice.