Closing a Company with Debts: Everything You Need to Know

Closing a company with debts requires that you follow the steps set out by your state or country's government. These steps can help you avoid legal issues.3 min read

Closing a company with debts requires that you follow the steps set out by your state or country's government. These steps can help you avoid legal issues.

Closing a Company With Debts

The United Kingdom has specific steps for closing a company with debts. The steps depend on whether or not the company has the funds available to pay off any debts.

A company may be left with the following debt:

  • Insurance from payroll
  • Corporation taxes
  • Bank loans and overdraft fees
  • Accounting fees
  • Director or shareholder funds
  • Supplier invoices
  • Lease agreements

A company that still has debts upon dissolving should be categorized as administrative dissolution or liquidation.

Liquidation would force the company to sell off any assets to pay these debts. In a liquidation, an insolvency partner will manage the day-to-day affairs of the company while evaluating the finances and selling the assets. Liquidation costs in this method start at around $2,500.

Another method often used to pay off debt is to claim redundancy for the director's pay. This claim is usually around $1,250. Liquidating or filing a redundancy claim is not always an option. In this case, it is best to file an administrative liquidation. An administrative dissolution costs much less, starting at just $250.

Steps for Dissolving a Company With Debts

If a company is in a position to pay off its debts, it should follow these steps:

  • Avoid taking on additional business.
  • Pay all directors' loans.
  • Additional debt should be paid. The company bank account should be kept open until all debts are paid.
  • Return any company vehicles and cancel contracts.
  • Run a final payroll for staff and submit payment.
  • Cancel VAT registration after the completion of the final VAT (value-added tax) return.
  • Directors may resign. It is important, however, that at least one director stays on to deal with the closing.
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