How Can I Wind Up My Solvent Company in England and Wales?

Suppose you own a business, made some money, and have now decided to call it a day. Rather than sell the business to a buyer, you may want to sell off all the company’s assets and distribute the cash to yourself and any other shareholders. This is called a “members voluntary liquidation” — also known as a “voluntary winding up.” You can think of it as placing your company in (permanent) retirement.

This article will explain the process of a members voluntary liquidation, as well as some alternatives to liquidation if you are considering winding up your company.

Liquidation vs Dormancy 

If you are thinking of liquidating your company, you need to give it serious consideration because it is a permanent decision. Likewise, you cannot undo this action, with few exceptions, unless you reform your company by incorporating it again. Additionally, there are tax implications for liquidating your company, and the administrative process can be onerous. It can also be expensive. 

If you are unsure about liquidating your company, an alternative would be to let your company become a dormant company. This is essentially where your company ceases to trade but still exists on the Companies registry. Importantly, you will have to file annual accounts with Companies House. However, if you think you may use your company again in the future, you may find it advantageous for your company to become dormant rather than liquidating. 

Winding Up Your Company

Declaring Your Company Solvent

You need to declare that your company is solvent at least five weeks before your company’s shareholders pass the special resolution ordering to wind up the company. This declaration affirms that your company has enough assets to meet all of its debts.  

A simple majority must make this declaration. So, for example, if your company has four directors, at least three of them will need to sign the declaration. 

Passing a Special Resolution

If you want to place your company into members’ voluntary liquidation, the company’s shareholders will need to pass a special resolution ordering it. This requires 75% or more of the shareholding votes. 

Your company can do this by:

• a show of hands at a general meeting; 
• on a poll at a general meeting; or
• by written resolution. 

You will also file this resolution with Companies House using Form LIQ01 within 15 days of passing the resolution.
 

Appointing a Liquidator 

You will also need to appoint an authorised insolvency practitioner at the special resolution meeting. This person is a professional who will take over your company’s administration to ensure that your company’s creditors are paid back, among other things. 

Fortunately, you can find an insolvency practitioner online. 

Notifying Your Company’s Creditors

Suppose your company has a floating charge over any of its assets. In that case, you will need to write to the creditor with the floating charge and inform them that your company’s shareholders have passed a special resolution to wind the company up. 

A floating charge is a special kind of security that you will have granted a creditor in exchange for certain kinds of loans. It gives your creditor the right to seize your inventory in the case of default while permitting you to sell your inventory so long as your company abides by the loan terms. 

This notice gives your creditor the right to appoint an administrator, as well as approve or deny the resolution to wind your company up. 

Advertising the Liquidation in the Gazette

The Gazette exists so that a company’s customers, clients, creditors, and any other interested parties are made aware that a company is being liquidated and struck off the registry. 

You will need to advertise that you are liquidating your company within 14 days of your company’s shareholders passing the special resolution. 

Your liquidator will also need to publish a notice of their appointment to the Gazette. 

Your Powers as a Director

In general, your powers as a director will cease upon the appointment of the liquidator, who will assume them. However, the liquidator does have the authority to permit you or the other directors to continue exercising your powers.

Selling Off Your Company’s Assets

The liquidator will use your company’s assets to repay your creditors according to the “order of priority”. This order is based on the terms and conditions of any debt your company owes and what sort of security your lenders have. 

The general rule is that your creditors will receive the proceeds from the sale of your company’s assets until they are paid off in full. At this point, the remaining money will be distributed to the shareholders, according to the rights attached to the shares. 

An Example

To give a simplified example, suppose that your final balance sheet looks like this:

Of your total assets, £200,000 will be used to pay off your debts. The remaining amounts will go to the shareholders. 

Additionally, if you own 50% of the business and there are two other shareholders (your brother and sister) who each own 25%, the remaining assets will be distributed as such:

Further, your liquidator will have additional responsibilities, such as preparing progress reports. The liquidator will also prepare a final report of your company’s accounts and deliver it to the shareholders and the Registrar of Companies. 

Final Steps 

When the final report is delivered to the Registrar of Companies, your company will be dissolved three months later. This is unless a court intervenes and defers the date of dissolution. At this point, your company ceases to exist. 

Key Takeaways

Voluntarily winding up your company is the process whereby the shareholders agree to bring the company to an end. The process can take some time, and you will need to appoint an outside administrator (called a “liquidator”). A liquidator ensures that your company’s creditors are paid off. It is a permanent solution, and you should not lightly take the decision to voluntarily liquidate your company. The timeframe will vary depending on the amount of debt you owe and how many creditors you have. Notably, it will take at least three months. 

If you need help winding up your company, our experienced corporate lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today at 0808 196 8584 or visit our membership page.

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