Dissolving a business can be a relatively straightforward and cost-effective way to close down a company with no assets.
By dissolving the company, directors can retain full control of the business throughout the process, pay off creditors, and eliminate the need for a formal creditors’ meeting.
However, not all companies can be dissolved or ‘struck off’ in this way. In order to strike off a company, it needs to be solvent. Therefore, if a company has debts, a different route needs to be taken in order to close it down.
Let’s take a look at the striking off process in a little more detail and assess the options for companies with debts.
What does striking off mean for a company?
Dissolving a company is a process which involves removing the details of a limited company from the Companies House register. Once the company name is removed, it no longer exists and cannot trade.
Can all companies be dissolved?
In short, no. Companies need to be solvent in order to be dissolved. Any remaining debts must be paid in full before the company in question can be struck off.
If the company is undergoing an insolvency procedure, it’s been threatened with liquidation, or it has a creditor agreement such as a Company Voluntary Arrangement (CVA), it cannot be struck off or dissolved.
Why do directors choose to dissolve their companies?
There are a number of reasons why a director may choose to close their company down by dissolving it.
The most common reasons can include:
Wanting to retire
If the business owner wishes to retire and there’s no one suitable to be a successor, dissolving the company may be the best option. If the company is solvent and hasn’t traded, sold any property rights or changed names in the last three months, striking off is likely to be a valid option.
Reorganising a group of companies
If it makes sense to reorganise a group of companies or merge them into one, there may be a company that is no longer needed. If this is the case, it may make sense to close that company down by dissolving it.
The company is no longer profitable
If a company is not making enough money for it to be worthwhile for its owners, going through the dissolution process may be the most preferred option.
Although these tend to be the most common options, there are numerous other reasons why striking off a company may be the best option. For example, there may be conflict between the directors, there are challenges that are proving extremely difficult to overcome, or there’s no longer a market for the company’s products or services.
What are the options for companies that cannot be dissolved due to debts?
There are other options available for companies unable to dissolve due to underlying debts. One of the most popular solutions is the Creditors’ Voluntary Liquidation (CVL) process.
At Clarke Bell, we often hear from company directors who are having difficulties closing their companies due to financial problems. In some cases, the outstanding debts aren’t a large amount but problems remain.
If this sounds familiar, we can help. We’ll charge a basic fee and will offer you a solution that:
- Deals with the business debts of the company
- Ensures that all the directors’ legal obligations are met
- Gives directors peace of mind and guarantees that new problems won’t arise further down the line
To learn more, please get in touch with the team at Clarke Bell.