How To Cease Trading A Limited Company
Are you looking to cease trading as a limited company? Closing a company down isn’t as simple as just stopping work.
There are legal obligations to meet, creditors to consider and formal procedures to be followed.
In this guide, we’ll explain what it means to cease trading, what happens next and the main routes to take depending on whether your company is solvent or insolvent.
How To Cease Trading A Limited Company: Summary
- To cease trading a limited company, you must understand that this means stopping all trading activities within the business – but it’s not necessarily the same as closing the business down
- Director duties still stand even after the company stops trading
- Assess whether your business is a solvent or insolvent one as this can impact which route you need to take to cease trading
- For companies in debt, getting the help of a licensed insolvency practitioner is recommended
What does it mean to cease trading a limited company?
To cease a company means to stop all trading activities within the business. No new work is taken on, no new invoices are raised and no revenue comes in.
However, ceasing trading isn’t necessarily the same as closing down a company. Until the company is formally dissolved or liquidated, it still exists as a legal entity. Directors continue to have duties during this period.
If you’re interested to learn more about closing down a company, read our dedicated guide: Closing A Limited Company: All You Need To Know
What are the director’s duties after ceasing trading?
Once a company stops trading, directors can remain responsible for the following:
- Keeping accurate records, including financial
- Filling out any outstanding returns with Companies House and HMRC
- Acting in the best interests of creditors if the company is insolvent
Failing to meet these duties may result in personal liability, director disqualification and other serious consequences.
If you’re unsure what steps to take next, professional advice is strongly recommended. Hudson Weir can help, especially with Director Defence.
The difference between a solvent company and an insolvent one
An important question when ceasing trading a limited company is whether or not it can pay all debts in full.
A solvent company can pay everything it owes – including any costs associated with closing the business down.
However, an insolvent company cannot pay debts in full as they fall due, or the company liabilities outweigh its assets.
Once you determine where your business stands, you can then decide which route is the best to take.
Not sure if your company is insolvent? Here’s three tests to find out: When Is A Company Insolvent? Three Tests To Find Out
How to cease trading a solvent limited company
Voluntary strike-off (dissolution)
If your company has no outstanding debts and meets certain conditions, you can apply to have it struck off the Companies House register. This is a simple, low-cost route for closing down a company with little or no remaining assets – read our guide on DS01 forms for more.
If you do have outstanding debts, this option may not be suitable for you. HMRC can object if tax affairs are unresolved and creditors can apply to have the dissolution reversed.
A voluntary strike-off is different from a compulsory strike-off where a company is forcibly removed from the register.
You can read more about forcible strike-offs in our guide: What Is A Compulsory Strike Off? All You Need To Know
Members’ Voluntary Liquidation (MVL)
When a solvent company has adequate assets, a Members’ Voluntary Liquidation is often the better option.
This is a formal winding-up process that is carried out by a licensed insolvency practitioner, even though the company is not insolvent.
Directors sign a Declaration of Solvency, confirming that all debts can be paid within 12 months. The insolvency practitioner will then take control of the process, settle any liabilities and distribute funds to shareholders.
How to cease trading an insolvent limited company
Creditors’ Voluntary Liquidation (CVL)
If a company cannot pay its debts, the most common route is a Creditors’ Voluntary Liquidation.
This process involves directors choosing to enter liquidation rather than waiting to be forced into it.
A licensed insolvency practitioner is appointed to evaluate company assets, look into director conduct leading up to insolvency, and distribute funds to creditors.
Taking this step early and voluntarily is generally in the best interest of directors. Continuing to trade while knowingly insolvent can expose directors to personal liability for wrongful trading.
Compulsory Liquidation
If a company does not want to take voluntary action and creditors are owed, that creditor can apply to the court for a winding up petition. If it’s granted, the court will issue a compulsory winding up order and an Official Receiver handles the liquidation.
Directors have far less control during a compulsory liquidation and the process typically involves a more thorough investigation into business conduct.
If your company has received a winding up petition, or you believe one may be coming, taking immediate professional advice is essential.
Company administration
In Administration, a company doesn’t always have to stop trading right away, the administrator might keep the business trading to sell it as a going concern. It’s worth noting that trading doesn’t always cease immediately in this scenario.
Administration is a more complex process than liquidation and is not appropriate in every situation, but it is good to understand as an alternative.
Read our guide for more information on What Happens When A Company Goes Into Administration?
Do I need an insolvency practitioner to cease trading?
For most companies looking to cease trading, especially where there are outstanding debts, employees or assets involved, we recommend working with a licensed insolvency practitioner.
Regulated professionals can advise on the right route for your circumstances and handle formal procedures to ensure everything is done correctly.
Solvent companies going down the voluntary strike-off route can generally handle the situation without professional help.
Further information
Ceasing trading as a limited company is a big decision and the steps you take after that decision matter.
Taking professional advice early, understanding your obligations, and following the correct procedure is vital.
If you found this article helpful, you may also want to read:
- Is There A Penalty For Not Issuing Payslips (UK)?
- Putting Personal Money Into A Limited Company: What You Should Know
- Active Proposal To Strike Off: What Happens If The Action Is Suspended?
- How Long Should You Keep Company Records After Liquidation?
Please get in touch with Hudson Weir if you would like to discuss any debt-related concerns.
