When is it best to close a solvent company without debts?

While company closure is often associated with insolvency, it can be a viable option for solvent companies depending on their situation. Before deciding whether you should liquidate a solvent company rather than dissolve it, you need to understand when both processes would be beneficial and the differences between them.

When might you close a solvent company?

You may think it counterintuitive to close a company that is solvent and performing well. However, you might want to do so if:

You wish to retire without a successor and not have to go through the process of selling the company.
The market in which the company operates has changed, potentially making it unprofitable or dissuading you from wanting to keep running the company.
You wish to close the company through a more tax-efficient process than a dissolution and take advantage of the potential benefits.
Your company is undergoing a merger and may be closed as part of the process.

Solvent company closure

How you’ll close your company depends on its circumstances. If it is solvent, that will largely depend on the value of its assets.

Solvent dissolution
A solvent dissolution ends the company’s legal existence by striking it off the Register of Companies at Companies House. If you attempt to dissolve an insolvent company, the creditors are likely to object, which they can do for up to six years following the attempted strike-off.

For a strike-off to be successful, your company must meet the following criteria three months prior to applying for the process:

No appointed administrator or receiver.
Not subject to any prosecution or disqualification.
Finalised pension scheme.
Not changed its name.
Has stopped trading.
Hasn’t disposed of stock.

Solvent liquidation
Solvent companies with more than £25,000 in assets, including cash at the bank, could close through a more tax-efficient Members Voluntary Liquidation (MVL). Through which, a licensed and regulated insolvency practitioner reviews the company’s situation and will advise whether an MVL is the best course of action before closing the company in an orderly manner. An MVL means you may be eligible for various benefits, such as Business Asset Disposal Relief (BADR), potentially reducing the amount of Capital Gains Tax that you have to pay.

Additionally, an MVL can offer several potential advantages over a dissolution:

Formal company closure
The closure process is enacted by a licensed and regulated insolvency practitioner, who is legally qualified to carry out a liquidation.
Fast distribution
Subject to shareholders’ indemnity, you may receive funds before needing to wait for H.M. Revenue & Customs’ clearance for release.

Conclusion

Liquidation isn’t just for insolvent companies; solvent companies are also eligible for liquidation if they meet the relevant criteria. It can be a more tax-efficient option than dissolving the company if it has more than £25,000 in cash and assets, and means you could benefit from Business Asset Disposal Relief, potentially reducing the amount of tax to pay. It could also be an option if you want to either retire or not run the company anymore without a line of succession.

Speak to an insolvency practitioner to better understand your position. They are licensed and regulated to carry out formal insolvency procedures, including solvent liquidations, and can clarify what solutions are available to your company.