Can I close a company with debts and start again? Yes, you can close your company down and start again. There is generally no barrier to closing a company with debts or, indeed, starting again. Restrictions arise from a director’s misconduct; they do not arise from simply closing a company with debts. Closing a company with debts is not misconduct in itself; there must be something more than that.
The Insolvency Act 1986 specifically enables directors to close down companies with debts by using the creditors voluntary liquidation procedure. Using a procedure in the Companies Act 2006, it is even possible to strike off a company with debts at Companies House if there are no creditors or other valid objections.
Closing A Company With Debts
There are limited restrictions on a person’s ability to trade except when a company has gone through an insolvency process such as Liquidation or Administration. However, even if there has been such an insolvency process, then unless a Director has been subject to Director disqualification or if the company has gone into insolvent Liquidation, in which case the re-use of the company name restrictions apply, then the ability to start again with a new company is not blocked.
Three Options To Close A Company With Debts
If you want to close a company with debts, then there are likely to be three options available:
- Striking off or dissolution of the company
- Creditors Voluntary Liquidation
- Compulsory Liquidation
For more detailed information on how to close a business please visit our main How To Close A Limited Company page.
Striking off or dissolution Of A Company With Debts And Restart
The dissolution or strike off procedure is often not considered a suitable way to close a company with debts. However, it is nevertheless theoretically possible in circumstances where no creditor comes forward to object to the striking off process.
If the rules of using a DS01 form to strike off a company are properly complied with then the ability to close a company with debts and start again would appear proper, possible and no restrictions thereafter would usually apply.
However, it is because a company with debts that seeks to deploy the strike off procedure will typically trigger a creditor objection that it often is considered an unsuitable process to close a company with debts and start again.
Creditors will often object to the striking off approach as it would mean the Directors close the company, drop the debts and can start again unrestricted without any investigation or independent oversight of their conduct. For many creditors such a position is a matter of concern and this can prompt them to petition for the winding up of the company for it to be placed into Compulsory Liquidation. However, the Creditors Voluntary Liquidation procedure to close a company with debts is often deployed in response to such an objection.
Creditors Voluntary Liquidation To Close A Company With Debts To Start Again
Directors will typically opt for Creditors Voluntary Liquidation as the way to close a company with debts and start again after taking advice from an Insolvency Practitioner.
Creditors Voluntary Liquidation is an insolvency procedure that is legally approved under the Insolvency Act 1986 which enables a company to be wound up in an orderly manner by a Liquidator. The company is in effect handed over by the Directors to the Liquidator who realises the assets and after the costs of Liquidation are taken into account, any surplus is distributed to creditors.
The debts of the company owed to its creditors are still owed but absent serious misconduct by the Directors such as wrongful trading and fraud trading, the debts of a limited company will be confined to the company. If however, the Directors have provided personal guarantees for some of the debts then Liquidation is likely to trigger a creditor with such additional rights to call in their guarantee.
Compulsory Liquidation To Close A Company And Start Again
Not all Directors will initiate the winding up process and the patience of creditors can wear thin, leading to them issuing a winding up petition. If the Court accepts the creditor is owed money and the company is unable to pay then it will typically agree to make a winding up order for the company to be placed into Compulsory Liquidation.
Compulsory Liquidation has many similarities to Creditors Voluntary Liquidation (“CVL”). In common with a CVL, the ultimate goal of the Liquidator (who is often a government official called the Official Receiver) is to realise the assets to distribute them net of costs to creditors. There are however some differences because it is a process that is started through an unhappy creditor’s court action, not usually initiated by the company itself.
Director Disqualification Barrier To Starting Again
Director disqualification will in most cases prevent a Director from setting up a new company to start again after closing down one with debts for the period they are no longer permitted to act as a Director.
The ability for a Director to obtain permission to act as a Director whilst disqualified is challenging, requiring what is legally known as leave (permission) of the Court. It is not provided too readily by the Courts because Director disqualification is not a restriction designed to punish a Director but to protect the public.
However, although something around 70,000 to 80,000 people each year are Directors of companies that go into an insolvency process like Liquidation only around 1,000 individuals are disqualified. As a result, for the vast majority of Directors, this restriction does not stop them from closing a company with debts and starting again.
Re-Use Of A Company Name After Insolvent Liquidation
If you have closed a company using insolvent Liquidation such as Creditors Voluntary Liquidation or Compulsory Liquidation then a key restriction (other than Director disqualification) that stops you from starting again is that arising from Section 216 of the Insolvency Act 1986 involving the re-use of company names. This restriction makes it unlawful for a Director to re-use the same or a similar name to the one of the company that went into insolvent Liquidation for up to five years if they were a Director at any time in the 12 months before Liquidation.
This restriction arises because of the so-called Phoenix company problem. This is the company that seemingly rises out of the ashes of the old company that has gone into insolvent Liquidation without the creditors being aware, thereby running up further debts.
However, three exceptions make this restriction less severe.
Notice In The Gazette
The first excepted case arises under Rule 22.4 of the Insolvency (England and Wales) Rules 2016 is where the new company acquires the whole, or the majority of the whole of the insolvent company, arranged by an Insolvency Practitioner acting as the Liquidator, Administrator or Administrative Receiver, or a Supervisor of a Company Voluntary Arrangement.
To deploy this exception and re-use the name, a notice has to be given through insertion in the Gazette newspaper within 28 days of taking on the name and purchasing assets of the former company. The notice must state that you are the director of a new company of the same name, or a similar name. You must also send a copy of the legal notice to all creditors of the company known to you or whose names and addresses could be obtained by reasonable enquiries. This must be received by them no later than 28 days after the completion of the arrangement.
Court Permission
The second excepted case arises under Rule 22.6 of the Insolvency (England and Wales) Rules 2016 and involves the new company requesting permission from the Court to re-use the name of the insolvent company.
The following two conditions should be taken into consideration:
- Permission must be sought by no later than 7 days from the date the company went into insolvent Liquidation.
- Permission will be granted by 6 weeks of this date.
Existing Name Of A Business Trading For More Than 12 Months
The third excepted case arises under Rule 22.7 of the Insolvency (England and Wales) Rules 2016, which states that the name of the insolvent company can be used if the company has been known by that name for the last 12 months before the company went into insolvent liquidation and was not dormant in the 12 months before Liquidation.
