.png)
I can’t repay my CBILS or Bounce Back Loan – what should I do?
If you need to close your company because of debt or a dire financial situation, you will probably have heard of liquidation or liquidating your company.
However, a liquidation can cost a lot of money, sometimes thousands of pounds.
But what if you don’t have any money and neither does your company? We explain how to liquidate a company that has no money or assets.
Firstly, what is liquidation?
To liquidate a limited company literally means to sell off any assets (things the company owns, like stock, computers, desks, buildings etc.) to turn them into money to repay the people the company owes money to (creditors).
Is it possible to liquidate a company for free?
Yes, but it’s not as simple as it seems.
In the scenario above liquidating the assets of the company would also pay for the liquidators (Insolvency Practitioner) fees, therefore essentially costing the directors nothing. This is useful because the cost to liquidate a company can often run into the thousands of pounds.
In some liquidation cases the company director may also be able to claim for redundancy, provided they have been on the PAYE scheme.
If there is any redundancy money this can also be used towards any liquidation costs. By utilising money raised from selling assets and redundancy claims you can essentially liquidate a company for free as you are not paying for the liquidation with money from your bank account.
How to close a company when there are no assets or funds for a liquidation
However, in some cases there might not be enough, or indeed any, assets to sell, or any redundancy money to claim, therefore there will be no money to pay for an Insolvency Practitioner, if this is the case then liquidation is not possible and you have a couple of choices which will achieve the same outcome.
1. If your company has no debts
If you simply want, or need, to close down the company, and there aren’t any debts or any assets to liquidate, then you can dissolve the company and have it struck off the Companies House register.
This process can typically take about 3 to 6 months and you’ll need to put together and present cessation accounts in order to do this.
NOTE. If your company does have assets then, depending on the amount, a Members Voluntary Liquidation may be the best route to use.
2. If your company does have debts
If the company does have debts but no assets then there is another route that can be used. This process clears any debts and allows for the company to be closed, this is called Administrative Dissolution. It has the same effect as a liquidation but usually costs far less.
The Administrative Dissolution process is based on the benefits of using Sections 1003 to 1008 of the Companies Act 2006 (formerly Section 652 of The Companies Act 1985) which are available to limited companies.
If you follow this route you should ensure that all creditors are informed and the financial position explained to them. You should also invite the creditors to petition for the winding up of a company.
You will also need to make sure that you inform all shareholders, directors, employees and trustees of any pension fund.
The benefit of Administrative Dissolution is that you have addressed your statutory duties of informing your creditors of the financial position and, as you have also reported the matter to the Registrar of Companies, you can’t later be personally fined by the Registrar for any later failure to deliver accounts and annual returns.
The main downside is that the process has to be carried out correctly with paperwork etc. being filed on time and in the correct order.
Also, it is especially important to be careful about your actions and accounts when you realise your company is trading whilst insolvent.
For example, if you attempt to sell off all assets in an independent sale for a price that is far below market value you could be accused of wrongful trading.
In addition, you shouldn’t take out any credits or loans while the company is insolvent, as you may be held personally liable for these debts if you are found guilty of wrongful or fraudulent trading.