What does ‘winding up a company’ mean?

To ‘wind up a company’ simply means to close it using a formal method, like liquidation. The process of winding up a company will vary depending on whether your company is solvent or insolvent at the time of the liquidation.

In this article, we take a look at those options so you can determine what’s best for you.

Winding up a company that’s solvent.

If your business is solvent – which means you have no issue paying your creditors on time and in full, and your assets outweigh your liabilities –  you can use a liquidation to extract the most amount of profit from your company when you close it.

The process of winding up a company that’s solvent is called a Members’ Voluntary Liquidation (MVL). Unlike an insolvent liquidation, in which the assets of the company are sold to repay its debts, in an MVL:

• You can take advantage of tax breaks for retained profits between £25,000 and £1m.
• You get all the proceeds of the liquidation (excluding outstanding debts).
• In some cases, the liquidation funds can be paid as soon as you enter the MVL process.

An MVL is also the best way to make sure your company complies with any legal obligations it has when closing, as you’ll have a licensed insolvency practitioner handling it all for you.

Winding up a company that’s insolvent

If you’re a limited company that’s in an insolvent position – you cannot pay your debts in full or on time, now or in the future, and your liabilities outweigh your assets – liquidation is often the simplest method to wind up your company.

The most common way to wind up an insolvent UK limited company is using a Creditors’ Voluntary Liquidation (CVL). The CVL process of winding up a company is managed by a licensed insolvency practitioner, acting as the liquidator.

In this process the liquidator deals with all the paperwork for you, calls meetings with shareholders and creditors, arranges for the valuation and sale of your assets, and distributes the proceeds of the liquidation to your creditors.

In some cases, a CVL can be used to perform a Start Afresh Liquidation. This uses the same winding up a company process but, rather than sell your assets to a third party, they are sold to you or another company director. This process is not without its complications and must be performed by a licensed insolvency practitioner.

It’s important to remember that a company can sometimes be saved from liquidation, or a business saved and restarted under a new company.