Yes, you can close a limited company with debts and start again. However, there are strict rules to be followed and if there is a claim that it has been done in a fraudulent way the consequences can be severe.
Restrictions and Considerations
When closing down a company laden with debts and starting a new one, there are some restrictions you need to consider:
- Reusing your old company’s name. There are legal restrictions for using the same or similar name as your old business when starting a new one.
- Having a significant interest in a similar company within 2 years. This applies to you, your spouse, parent or child. This is part of the Targeted Anti Avoidance Rules which aim to stop phoenixing.
Methods of Closing a Company
There are three main ways of closing a private limited company:
- Selling the company. If your business has asset value that would interest another party, you can sell your shares to them.
- Striking off the company. This removes it from the Companies House register.
- Member’s voluntary liquidation. This is where the owners agree to liquidate a solvent company.
Key costs include professional fees for accountants, solicitors or insolvency practitioners. The process can also affect your tax situation.
Starting Over
Starting a new company after closing the old one is done like starting a fresh company. An application is made at Companies House. Once the new company is registered, bank accounts etc. can be applied for.
The first step in closing a limited company is to notify stakeholders – shareholders, employees, creditors and customers. The company must fulfill outstanding obligations like paying off debts, taxes or liabilities. Once done, the legal winding up process can begin by filing paperwork with Companies House and distributing remaining assets among shareholders.
Costs to Consider
Costs to close a limited company include:
- Professional fees for advice from accountants, solicitors or insolvency practitioners
- Companies House fees for processing closure applications
- Insolvency practitioner fees for processes like CVL or CVA
- Employee redundancy costs like statutory pay, notice periods and holiday pay
- Settling outstanding debts and liabilities
If your company is insolvent, interests of creditors legally come before directors or shareholders when closing.
When closing a solvent company, you can choose to strike it off Companies House register or start a members voluntary liquidation which allows solvent winding up.
Can I start another company after liquidation?
Post-Liquidation Restrictions
When you move to start another company after liquidation, there are restrictions you need to consider:
- Personal guarantees secured by loans still apply.
- All liquidations use licensed insolvency practitioners.
- Reusing a company name is possible after liquidation, but there are important rules to prevent ‘phoenixing’.
Liquidation proceedings should be instituted when a debtor company cannot pay its debts. A company cannot be dissolved just to avoid paying debts.
You can be a director of multiple companies at once. However, if the old company was liquidated, the new company name cannot be the same or similar.
ASIC can disqualify you from being a director if you directed two companies that liquidated within seven years, paying creditors less than 50 cents per dollar owed.
The Insolvency Act and Reusing Company Names
Section 216 of the Insolvency Act 1986 prevents former company officers using a similar-sounding business name for five years after liquidation. Exceptions exist if:
- Another business traded under the brand for over one year already
- You apply to court to reuse the name within seven days of the liquidator taking control
So, while it is possible to be a director after liquidation, restrictions apply to prevent escaping the consequences of debt. Seeking legal advice is important.