Closing your Business

The best way for you to close your limited company will most likely depend on where it stands financially and what you plan to do moving forward. Nevertheless, a closing company still has certain legal responsibilities towards its employees, including yourself as a director-employee.

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Where employees (including yourself as a director-employee) are being made redundant due to the closure of the business, the company is liable to ensure that:

  • All outstanding salary payments are paid up to date
  • Employees are paid for any outstanding holiday days owed
  • Employees are given a sufficient, paid notice period of employment ending, or payment is made in lieu of notice.

In addition, those employees that have worked for the company for two years or more will be entitled to either:

  • Their contractual redundancy pay (as defined by their individual employment contracts) or
  • Statutory redundancy pay

This is a legal requirement and obligation of the company. You can find out more about calculating statutory redundancy entitlements here.

If your company can settle all of the above, then it should do so and proceed to Dissolution or Members' Voluntary Liquidation. If it can't, however, there are options available to you.

Has the company settled all its debts - to HMRC, suppliers, accountants etc?

Has it paid all of its employees, including yourself as director, for any outstanding salary payments, holidays owed?

Were all employees, including yourself, given the required, paid notice period of employment ending?  (Statutory entitlements are one week for every full year of service given, up to a maximum of 12. NB this may be more in an individual employment contract).

If you can answer yes to all of the above, and the only obligation the company can't meet is redundancy payments, including to yourself, it's possible that you may be able to use the dissolution route and still apply to the Redundancy Payments Service Financial Assistance Scheme for redundancy payments where due.

In such circumstances, all of the company's other debts should have been settled - see more information on 'Dissolving a limited company' below.

This is a very straightforward, informal process in which the company’s directors apply to Companies House themselves to have the company struck off the register. This costs just £10 and only requires a DS01 form to be filled out and filed at Companies House.

There are several requirements that ought to be met in order for the company to be struck off.

  • The company must not have traded or carried on any business activity except for those involved in concluding the company’s affairs and striking the company off the register, in the 3 months prior to dissolution
  • It must not have changed its name in the last three months
  • It must not be the subject of any insolvency proceedings, such as liquidation
  • Or still be subject to any compromises or agreements with creditors, such as a section 895 scheme, CVA, any HP agreements or leases
  • All contractual payments due to employees must have been settled
  • There can be no legal actions outstanding against the company

In short, for the company to be struck off it should have settled its final affairs, including its obligations towards its employees. If however, there are problems finding the funds to make redundancy payments, and only redundancy payments, it may be that you can still follow this route. Applications for redundancy payments due will need to be made to the Redundancy Payments Service Financial Assistance Scheme.

If there are outstanding employment entitlements owing to employees, including yourself, for any arrears of pay, holiday days, or sufficient paid notice of employment ending wasn't given, the company should not be dissolving. In such cases, a Creditors Voluntary Liquidation (CVL) is likely to be more appropriate.

The vast majority of cases we work with are those companies that are going into Creditors Voluntary Liquidation (CVL). This is a mechanism for closing down a limited company that is no longer viable moving forward and has outstanding debts, whether to other creditors and/or employees for outstanding employment entitlements. CVL is a formal legal procedure, and as such must be carried out by a licensed Insolvency Practitioner (IP).

If you don’t have a liquidator in mind, we are happy to recommend one that we work with. In any event, they will be happy to provide a quote and you can shop around.

Where the company owes money to its employees for the employment entitlements listed above at closing, all employees will become preferential creditors in the company’s liquidation. As such, they will be entitled to apply to the National Insurance Fund via the Insolvency Service to claim back any outstanding entitlements they are due once the company goes into CVL. You can find further information on the process and the timescales involved here.

This is the formal mechanism for closing down a solvent company with assets remaining. In such cases, the company is required to ensure that all employees’ entitlements, as outlined above are settled prior to the company’s closure and distribution of assets. Members Voluntary Liquidation is also dealt with by a licensed Insolvency Practitioner.

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Helping director employees get back what they’re due

Redundancy Assist was set up with the sole purpose of helping directors know exactly what they are entitled to in the event of insolvency, and helping them to recover their entitlements efficiently.

Our staff have operated within the insolvency sector for several years and have a deep understanding of its procedures and requirements. Coupled with our strong working relationship with the Redundancy Payments Service, our experience enables us to expertly advise company directors of insolvent companies.

Our case managers all hold up to date CIPD qualifications in Employment Law.