If your company is struggling with unmanageable debt and has no viable way out, winding up the company using a formal insolvency process is a straightforward, legally responsible way to take control of the situation. It means the company is closed properly, debts are dealt with and directors meet their legal responsibilities.
When should you wind up an insolvent company?
If your company is in financial trouble but you’re unsure whether to close it down, ask yourself these key questions:
- Is the business unable to pay its debts when they’re due?
- Are creditors taking action, or have you received legal threats?
- Have cash flow problems made it impossible to trade effectively?
- Does the company owe unpaid wages, tax bills or supplier invoices?
- Is there no realistic prospect of turning things around?
If you answered ‘Yes’ to any of these, it’s time to seriously consider your options. The earlier you act, the more options you’ll have – and the more control you’ll keep over whether to close or not. Call us for free, confidential advice.
What is the winding up process?
When you decide to close an insolvent company, the process follows a structured legal route. It might be tempting to simply stop trading and walk away. But this can lead to action being taken by creditors to reclaim the money they’re owed. A formal insolvency process to wind up is the best way to avoid this risk.
The most common way to wind up an insolvent company is through a Creditors’ Voluntary Liquidation [link to page] (CVL). It gives you, as the director, the chance to take control of closing, rather than waiting for creditors to force the company into Compulsory Liquidation.
What happens to company debts in a winding up?
One of the biggest concerns for directors is what happens to debts when winding up a company.
Here’s how debts are typically handled:
- If the company has assets, they are sold to repay creditors in order of priority.
- If there are no assets, creditors will likely receive little or nothing.
- Any remaining company debt is written off as part of the liquidation.
This means that in most cases, directors won’t have to repay company debts unless they have given personal guarantees or engaged in wrongful trading.
What are your responsibilities as a director?
Once you’ve decided to wind up your company, you have legal responsibilities to follow.
Stop trading immediately – Continuing to trade while insolvent can lead to serious consequences.
Act in the best interests of creditors – You must not take any action that makes their financial position worse.
Cooperate with the insolvency practitioner – You’ll need to provide company records, financial statements, and any other necessary information.
What happens if there are no assets to liquidate?
Even when a company has no assets, it can still go through an insolvent liquidation process. However, since there’s nothing to sell to repay creditors, the outcome is slightly different.
If there are any outstanding liabilities to suppliers, they’re unlikely to receive payment as there are no assets to recover. Any unpaid tax liabilities will also be written off, unless directors are found personally liable due to misconduct.
If your company owes wages or redundancy pay, employees may be able to apply to the Government for wages and redundancy pay.
If you’re unsure how to fund the liquidation when there are no assets, speak to one of our experts for free, confidential advice on the best route forward.
Can directors be personally liable for company debts?
In most cases, directors are not personally responsible for company debts. However, there are a potential exceptions. For example, some business loans and finance agreements require a director’s personal guarantee. If you’ve signed personal guarantees, you may still be personally liable for the repayment.
What happens after winding up a company?
Once the liquidation is complete, the company is officially closed and removed from the Companies House register. At this point, it no longer exists, and all outstanding liabilities are wiped out. As a director, you’re free to start a new business.
Worried about winding up your company?
Closing a company is never easy. But you don’t have to go through it alone. Our expert team can guide you through the winding up process, ensure you meet your legal obligations and help you move forward with confidence.
Whether you’re unsure if your company is insolvent, worried about your personal liability or just need clear advice on your next steps, we’re here to help. Contact us today for a free, no-obligation consultation.
