How a business is closed down matters

There are three main ways of closing a company and each one can impact on redundancy

W questions are nearly always the most important. When, Where, Which, Why and What usually give you all the information you need about a situation but when it comes to a formal business closure the most important question doesn’t begin with a W but an H – How.


One of the most important things to consider in any redundancy situation is how the business has been closed down. It might not mean a great deal to you if you have lost your job but legally and for the directors, it matters tremendously.


A good example of this is that if a company is dissolved with monies owing to employees and/or directors, they will then lose the opportunity to be paid all their entitlements.


A company must be liquidated in order to access payments for arrears, holidays, redundancy and notice payments.


There are three main options when it comes to company closures:


Creditors’ Voluntary Liquidation (CVL)


Most of the cases we work on involve companies that are going into a CVL.


It’s how limited companies close down if they’re no longer financially viable and have outstanding creditors debts or owe outstanding entitlements to employees. It’s a formal legal procedure and can only be completed by a licensed Insolvency Practitioner.


If a company closes, owing money to employees, then they would become preferential creditors in that company’s liquidation. This means they can apply to the National Insurance Fund ran by the Insolvency Service to claim back any owed entitlements once the company enters a CVL.




This is the easiest and cheapest method of closing a company’s affairs and can be done by the ny directors themselves. They simply apply to Companies House to have the company struck off the register.


This can only be completed if the business meets certain criteria including: Not trading for three months prior to dissolution; not being subject to other insolvency proceedings or creditors agreements like a CVA; All salary and redundancy payments must be up to date with no legal action outstanding.


If a company is facing a winding-up petition or any other legal actions to recover owed money then it will be automatically rejected.


Members Voluntary Liquidation (MVL)


This is the formal way of closing down a solvent company and must also be done by an Insolvency Practitioner. They ensure that all employees’ entitlements are settled before closure and oversee the distribution of assets.


While more expensive than a simple company dissolution, an MVL also gives directors more control over the procedure. For instance, directors of a company in dissolution will lose their entitlement to Directors Redundancy. In an MVL, they could still be eligible to claim from the National Insurance Fund if certain conditions are met.


Every personal situation is different regardless of what method a company chooses to close the doors for the last time and whether you are a director or an employee, contact us to see if you are maximising all of the options available to you.


We can lay out all the choices you have and what to do to make the most of them.