Understanding the true costs of closing a limited company is crucial for directors. Chris Worden explains the different processes, fees, and hidden personal liabilities you need to know before making a decision.
- Costs vary from £33 to tens of thousands depending on the method
- Five main ways to close a company: strike off, MVL, CVL, administration, compulsory liquidation
- Hidden costs include personal guarantees and overdrawn director's loans
- Ignoring advice can lead to nasty surprises and personal liability
- Always seek professional guidance before acting
Ways to Close a Limited Company
1. Voluntary Strike Off (Dissolution)
Cost: £33. Suitable only if the company has ceased trading, has no debts, and all taxes are settled. Creditors, including HMRC and banks (especially if a bounce back loan exists), can object to the strike off.
2. Members Voluntary Liquidation (MVL)
Cost: £3,000–£5,000 plus statutory fees. For solvent companies wishing to distribute remaining funds tax efficiently. Only for companies able to pay all debts.
3. Creditors Voluntary Liquidation (CVL)
Cost: From £5,000 (may rise to £10,000). Most common for insolvent companies. Involves an insolvency practitioner who manages the process, including notifying creditors, handling redundancies, and reporting director conduct.
4. Administration
Cost: Typically £40,000–£50,000. Used for insolvent companies where business rescue or sale is possible. Includes agent, solicitor, and valuation fees.
5. Compulsory Liquidation
Cost: £0 upfront for directors. Initiated by a creditor via a winding up petition. The official receiver takes control, and directors lose the ability to choose their liquidator. Consequences can be severe, including frozen bank accounts and potential disqualification.
Hidden Personal Costs
- Personal Guarantees: Lenders may pursue directors personally after insolvency. Most can be restructured, but transparency is key.
- Overdrawn Director's Loan Accounts: Directors must repay money owed to the company. Insolvency practitioners are duty-bound to recover these funds.
- HMRC Debts: Serious misconduct can result in a personal liability notice from HMRC.
- Bounce Back Loan Misuse: Misuse can lead to personal repayment demands and investigation.
What Determines the Cost?
- Is the company solvent or insolvent?
- Are there assets to cover fees?
- Do you want to control the process or risk being wound up in court?
Key Takeaways
- Strike off is the cheapest but only for debt-free companies
- MVL and CVL have significant costs but offer more control
- Compulsory liquidation is free but risky and stressful
- Personal liabilities can far exceed the liquidation fee
- Chris Worden and his team can help you understand your position and avoid costly mistakes
Frequently Asked Questions
- What is the cheapest way to close a limited company?
- Voluntary strike off costs £33 but is only suitable for companies with no debts or liabilities.
- Can I close my company if I have debts?
- You cannot use strike off if you have debts. A CVL or compulsory liquidation may be required.
- What happens to my director's loan account in liquidation?
- If overdrawn, you must repay it. Insolvency practitioners will pursue repayment from directors.
- Will I be personally liable for company debts?
- Personal guarantees, HMRC misconduct, or bounce back loan misuse can make you personally liable.
- How can I get advice on closing my company?
- Contact Chris Worden and his team for free, impartial advice before making any decisions.
