For the directors of most companies, consultancy or otherwise, the decision to close will be considered at one point or another. While this can be due to the lack of profitability of a company, there are many more reasons behind directors’ decisions to close. The opportunity to pursue new ventures, create a healthier work-life balance, or retire are all core reasons to close a consultancy company. However, while the decision to close your consultancy company is by no means an easy one, finding the best method of doing so is often even more difficult.

In this article, Clarke Bell will discuss how to close a consultancy company, detail the common ways of doing so, and what benefits each method can provide you.

Company liquidation

One of the most common methods of closing a company of any kind is liquidation. This method involves the assistance of a licensed insolvency practitioner, who will identify and dispose of company assets, with a view to releasing a company’s retained profits as efficiently as possible. There are three different forms of company liquidation, each with its own goals and advantages. For the purposes of this article, we will focus on two forms – a Members’ Voluntary Liquidation and a Creditors’ Voluntary Liquidation.

Members’ Voluntary Liquidation

A Members’ Voluntary Liquidation (MVL) is one form of company liquidation. This particular form of liquidation is an option for directors of solvent companies, and ensures a company is liquidated as tax efficiently as possible. The MVL procedure offers directors significant tax benefits, with proceeds being taxed under Capital Gains rates, which are considerably lower than the Income Tax rates under other methods of closing a company. Moreover, liquidating a company using an MVL may entitle you to Business Asset Disposal Relief, previously known as Entrepreneurs’ Relief. This offers a further tax benefit on gains up to a lifetime limit of £1 million. These two benefits combined can result in exceptional tax savings, allowing you to keep the vast majority of your consultancy company’s profits.

An MVL is typically used to liquidate companies with assets of above £25,000. The tax savings which are received balance out the fees incurred to liquidate the company. This makes it financially worthwhile. 

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Creditors’ Voluntary Liquidation

A Creditors’ Voluntary Liquidation (CVL) is another form of company liquidation. It is also initiated by directors voluntarily, but it is for insolvent companies. 

A CVL liquidates a company just as efficiently as an MVL, but the purpose of this liquidation is not the company’s shareholders. Instead, a CVL has two main goals – ensure obligations to creditors are upheld, and that the company is closed smoothly.

The CVL procedure offers several key benefits to directors:

1. Directors can appoint an insolvency practitioner of their choosing, rather than have one appointed upon them (which is the case in a compulsory liquidation). This insolvency practitioner will take the reins, carry out the liquidation, and distribute the proceeds.
2. The company will enjoy a number of legal protections. Outstanding creditors will be unable to take legal action against the company while the CVL procedure is active, essentially protecting it from winding-up petitions and compulsory liquidation.
3. Any debts that remain unpaid at the end of the procedure will be written off, with the exception of debts secured by a personal guarantee.

If your consultancy company is in considerable amounts of debt, a CVL will allow you to close it down smoothly while still upholding your obligations as a director.

Company dissolution

If neither form of voluntary liquidation is appropriate to close your consultancy company, you may be better served by company dissolution. Also known as a company strike-off, this procedure is particularly useful for smaller companies lacking a large reserve of retained profits. It is exceedingly cheap, costing only £10 if initiated using a DS01 form in paper format. This cost can be reduced to £8 by using the online portal at Companies House.

In addition to being cheap, dissolution is a straightforward procedure to enact. You will need to submit a DS01 form, as we’ve mentioned, along with notifying any parties related to your company. This includes shareholders, employees, and so on. You will also need to notify HMRC of your decision to cease trading, and transfer any assets out of the company. Anything that remains after the company has been removed from the register at Companies House will be considered “bona vacantia”. This essentially means without an owner, and will see a transfer of asset ownership from your dissolved company to the Crown.

Before dissolving your company, you must first check to see if you are eligible. If your company cannot legally be dissolved, yet you attempt to do so regardless, you could face serious legal penalties. The eligibility criteria are as follows:

• Your company must be solvent and not be threatened with compulsory liquidation.
• Your company must not be facing legal action by creditors.
• Your company must not have active agreements with creditors, such as a Company Voluntary Arrangement (CVA).
• Your company must not have changed its name within the last three months.
• Your company must not have traded within the last three months.

Sell your company

If the common methods of closing a company aren’t suitable or desirable for you, selling your company might be the solution. There are several ways you could go about this, depending on your situation. If you are the sole director of your company, you won’t be able to sell shares as most companies do; instead, you will have to seek out a buyer to whom you will transfer ownership of the company at the end of a transaction.

Alternatively, if you are one of several directors, you could dispose of your shares and walk away from the company, or consider a pre-pack administration (if the company has debt issus). This procedure allows for the swift sale of a company, as a transaction will be agreed upon before the involvement of an insolvency practitioner. In some cases, a pre-pack administration will enable directors or other individuals within the company to purchase it, which can be useful if your company has a solid business model.

Clarke Bell can help

If you are considering closing down your company, let Clarke Bell be there to help. We have more than 28 years of experience in helping companies find the most efficient and effective means of closing, and we can do the same for you. Don’t hesitate to contact us today for a free, no-obligation consultation and find out exactly what we can do for you.