The drawbacks of dissolving your company instead of liquidating it

The drawbacks of dissolving your company instead of liquidating it

April 15, 2021 by Sandra

Unfortunately in business, as in life, things don’t always go according to plan.

No one sets up a company with the intention of having it slowly fail, but sadly, businesses do often fail. It’s unavoidable sometimes.

It could be the case that the issue lies with mismanagement, however there are often external forces at work and variables outside of the control of those running it. 

If you run your own company and have found things tough lately, you’re not alone. Sometimes, despite all the hard work and determination and whatever the reasons behind your business woes, the best course of action is to wind a company down, draw a line under it and shut up shop for good.

So, if you’re wondering how to dissolve a company, read on to find out...

5 key considerations when deciding to dissolve a company:

1. Dissolution versus liquidation

If you decide it’s time to close your business, you have two main options ahead of you.

You can either enter into a creditors’ voluntary liquidation, which involves appointing a licensed insolvency practitioner to step in and distribute your assets amongst your creditors, or you can apply to dissolve the business and have the company’s existence struck off from Companies House. 

2. When is dissolution the best option?

Dissolving a company is only really the best course of action when the business is no longer serving a purpose; it is not recommended as a solution for companies that are failing financially.

In fact, if it can be proven that you’ve failed to inform your creditors about your dissolution application, you could be banned from future directorships or even prosecuted. 

3. What about if I owe money?

If you owe money, there’s very little chance that your application for dissolution will be approved anyway. Even if your application does slip through the net, though, it doesn’t mean that your company is no more forever.

If a creditor contacts the court and alerts them to an outstanding payment or series of payments, they have the power to effectively resurrect the business – and they have up to 20 years to make such an application to the court! 

If this happens, the company will be restored at Companies House and the creditor will be free to restart debt recovery proceedings. However, if you formally liquidate your business, it’s closed down for good with no argument.

4. Dissolution and director redundancy

If you dissolve your business, you won’t be eligible to claim director redundancy – but if you enter into a CVL, you will be. The current average for such a claim is around £12,000, and director redundancy can be a hugely valuable lifeline when you are going through this stressful time.

Plus, not only could the redundancy money help to pay towards liquidation costs, but it could also give you an additional financial boost whilst you plan your next steps. 

5. So which route is right for me?

The key factor that should determine whether you choose to dissolve your company or liquidate it is your level of debt. If you can afford to pay off all your creditors before you cease trading and you have no material assets to distribute, then dissolution could be the best option for you.

However, if you can’t meet your financial obligations and want to make sure everything is tied up properly, then voluntary liquidation will most likely be the right route. 

How McAlister & Co can help

If you are thinking about closing your company but are unsure about which route is right for you, our friendly team will be more than happy to answer all of your questions.

As expert insolvency practitioners with over 20 years of experience, we can provide advice on all the solutions available, from creditors’ voluntary liquidations and members' voluntary liquidations to dissolution and how to dissolve your company.

So, if you want to take the hassle out of the process of closing down your business and want to make sure everything runs as smoothly as possible, speak to us about the best course of action today. 

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