Closing company

[Helloworld26]

Hi all,

Another novice question but would love thoughts on closing a company. I’ve read a lot of different cases here and suggestions but I’ve finally decided to just register an account and here your thoughts.


Context: the company is a limited company created December 2022, has 1 employee and zero assets.

We received initial “startup” money in this company of around £20,000 from another company in Sweden that I own, these tel companies are not legally linked as entity’s or subsidiaries or anything, two seperate company’s where I’ve just transferred that money from one entity to the other to get an idea off the ground, this would in theory be a loan from the Swedish company to the UK company.

Technically the company made zero money in revenue just had this lump sum payment

Nevertheless, this startup idea for the UK company didn’t work and it’s dead, after 6 months we want to kill it, but it comes with the necessity to kill the suppliers/contracts we signed up to also. One of these suppliers is a technology company called modulr. We signed up to them back in February 2023, and in may 2023 told them we can’t continue this relationship, by this point we hadn’t even used their technology they offered us but we did sign a contract. The contract length would give them £150,000 in payment from us for supplying us technology, after asking to end the contract they offered us a gesture of goodwill fee of £50,000 to end it.

The timeline so far has been around a month of explaining we have no money, and they’ve now asked us to prove that with bank statements which we can easily do.

So, we’re at the point now where they’ve mentioned they may pass this onto debt collectors, but they also know we really have zero money left around £600 in our bank accounts, and zero assets so it would really be a case of passing on a dead debt.

I’d like to hear if you think I should carry on trying to negotiate with them and pass on supporting evidence like bank statements, or just voluntarily close the company.

I’ve informed the employee that if the company closes his employment will terminate and I don’t want to continue the company in any shape or form so no worries about salvaging the business. I would much rather close it. I haven’t filled any returns or taxes and I don’t have a UK accountant.

Thank you in advance, looking forward to learning

 

[WaveJumper]

Well I am sure the IP's here will offer some words of wisdom, but if its a UK ltd and that entity "holds" the contracts why not just liquidate the company, what does your accountant / solicitor suggest

Did you give any personal guarantees or link this in anyway to your other company in Sweden

 

[UK Contractor Accountant]

I’d like to hear if you think I should carry on trying to negotiate with them and pass on supporting evidence like bank statements, or just voluntarily close the company.

Ignore them, complete form DS01 (Strike Off) online and send them a copy and to any other known creditors of the company.

I would also file a nil corporation tax return with HMRC stating not within charge to ctax as did not trade.

Then just wait for Companies House to dissolve the company. If anyone objects to strike off just invite them to liquidate the company.

 

[ChrisCallaghan]

Hello @Helloworld26 ,

I think @WaveJumper has hit the nail on the head with...

Did you give any personal guarantees or link this in anyway to your other company in Sweden

If not, and given that you have stated that you have no desire to continue with this company, I think exploring closure options would be sensible. Given the level of debt and staff, a Voluntary Liquidation would likely be the sensible route. You could attempt a simple dissolution application at Companies House (often referred to as the SpongeBob Method on this forum) but I suspect your main creditor would object and continue with any legal action they are considering. A secondary benefit of a Voluntary Liquidation is that UK Government will pick up the bill for any staff claims (unpaid wages, holiday pay, etc).

If you would like to explore these options in more detail, I (and any of the insolvency regulars here on UKBF) would be happy yo offer you a free, confidential and no obligation consultation.

 

[Newchodge]

Ignore them, complete form DS01 (Strike Off) online and send them a copy and to any other known creditors of the company.

I would also file a nil corporation tax return with HMRC stating not within charge to ctax as did not trade.

Then just wait for Companies House to dissolve the company. If anyone objects to strike off just invite them to liquidate the company.

Can they claim they didn't trade if they have an employee and have spent £20,000?

 

[Helloworld26]

@WaveJumper, thanks and no personal guarantees - we don't have an accountant.

@UK Contractor Accountant, thank you - we did not have any paying customers or any success we just used the money to pay a staff member and pay some technology costs.

@Chris Callaghan, I will look into this spongebob method ASAP thank you and sounds good I would like to follow up and chat.

@Newchodge, good question. I'll wait to see others responses.

Thank you all

 

[ChrisCallaghan]

@Chris Callaghan, I will look into this spongebob method ASAP thank you and sounds good I would like to follow up and chat.

To save you searching, see below for the SpongeBob guide. As mentioned, be mindful that creditors can object and may continue legal action.

CLOSING A LIMITED COMPANY WTH INSUFFICIENT FUNDS WITH WHICH TO PAY AN INSOLVENCY PRACTITIONER

CLOSING AN INSOLVENT LIMITED COMPANY WITH INSUFFICIENT FUNDS WITH WHICH TO PAY AN INSOLVENCY PRACTITIONER If a company is unable to carry on trading due to becoming insolvent the standard procedure for closing it down is for the directors to appoint an Insolvency Practitioner to liquidate it...

www.ukbusinessforums.co.uk

If you'd like to have a chat, my contact details are in my post signature, or you can DM on here to arrange a call.

 

[UK Contractor Accountant]

Can they claim they didn't trade if they have an employee and have spent £20,000?

i would argure that's pre-trading activities

when you open the doors and advertise for trade/work etc is the commencement of trading for ctax purposes.

 

[Helloworld26]

@UK Contractor Accountant thanks for the clarity.

It would seem the spongebob method is the one I'll follow and file a nil corporation tax return with HMRC

Thank you all - I welcome anymore feedback and I'll action these steps shortly after

 

[Lisa Thomas]

Will the employee be due any wages/holiday/pension or notice when you terminate their contract?

 

[Helloworld26]

Will the employee be due any wages/holiday/pension or notice when you terminate their contract?

Yes the employee has a 3 month notice period, but is also a good friend and someone who is willing for us to remploy them through another company asap. We’ll use a employer of record such as remote.com to facilitate this

They will be owed around 10 days of holiday pay

There employment has been for 5 months so far, should we be aware of something in the voluntary liquidation process I should be aware of

Lastly the employee has no pension we were just in the process of setting it up

 

[Lisa Thomas]

Their holiday pay is classed as a preferential creditor, so it could be reasonable to pay them from the company's cash if there is enough to cover it.

I don't quite agree with Chris about the CVL - if the creditor objects to the dissolution notice, so what. Eventually Companies House will strike the company off for non filing, or the creditor will liquidate for you.

You can also explore a compulsory liquidator which will be cheaper than a CVL. That currently costs £2,900.

 

[Paul Kelly ICHYB]

Technically the company made zero money in revenue

Technically? What does that mean? it did or it didn't!

 

[Helloworld26]

Technically? What does that mean? it did or it didn't!

As in the company made zero revenue, it received one payment from my swedish entity to commence paying staff for the 6 months, and in this time it was building software which didn't work.

 

[Helloworld26]

Their holiday pay is classed as a preferential creditor, so it could be reasonable to pay them from the company's cash if there is enough to cover it.

I don't quite agree with Chris about the CVL - if the creditor objects to the dissolution notice, so what. Eventually Companies House will strike the company off for non filing, or the creditor will liquidate for you.

You can also explore a compulsory liquidator which will be cheaper than a CVL. That currently costs £2,900.

Noted on the holiday pay. Thanks for this clarification!

So it's a suggestion to revert back to what @UK Contractor Accountant mentioned of, as it seems similar to what you say (but you mention non filing) it seemed to me you should always file your revenue etc even if nil which it will be in our case

The suggested route it seems now is:
1. DS01 (strike off) online
2. Send to creditors
3. File nil corporation tax
4. Wait to see if HMRC strike off or if creditor wants to liquidate

Thanks in advance for your help, as it's two contrasting methods I'll be sure to report back with what I choose and the process, but want to be double right before starting

 

[Gyumri]

I suspect your main creditor would object and continue with any legal action they are considering.

Correct - hence one could show them the final bank statement prior to closing the account if it's going to buy peace- otherwise no point in showing the bank statements.

It would seem the spongebob method is the one I'll follow and file a nil corporation tax return with HMRC

That will get you a few brownie points from HMRC - but don't expect a thank you letter.

The suggested route it seems now is:
1. DS01 (strike off) online
2. Send to creditors
3. File nil corporation tax
4. Wait to see if HMRC strike off or if creditor wants to liquidate

I would just follow route 4 as nobody is interested in looking at a nil return; and apart from your other company it doesn't have any creditors except the technology company.

I would offer them £1 in full and final settlement - although they have provided you with the technology you ordered so you can understand their position. Whether you used it or not is not their concern. However if they haven't suffered any damages then any claim would result in a judgment of nominal damages for usually £1.

There is nothing really for a debt collector to collect.

 

[Lisa Thomas]

Noted on the holiday pay. Thanks for this clarification!

So it's a suggestion to revert back to what @UK Contractor Accountant mentioned of, as it seems similar to what you say (but you mention non filing) it seemed to me you should always file your revenue etc even if nil which it will be in our case

The suggested route it seems now is:
1. DS01 (strike off) online
2. Send to creditors
3. File nil corporation tax
4. Wait to see if HMRC strike off or if creditor wants to liquidate

Thanks in advance for your help, as it's two contrasting methods I'll be sure to report back with what I choose and the process, but want to be double right before starting

1 and 2 and the wrong way round. You have to give notice to creditors of your intention to file the DS01.

Guidance for limited companies, partnerships and other company types

Guidance about registering, filing and disclosing information with Companies House.

www.gov.uk

 

[Helloworld26]

Correct - hence one could show them the final bank statement prior to closing the account if it's going to buy peace- otherwise no point in showing the bank statements.

That will get you a few brownie points from HMRC - but don't expect a thank you letter.

I would just follow route 4 as nobody is interested in looking at a nil return; and apart from your other company it doesn't have any creditors except the technology company.

I would offer them £1 in full and final settlement - although they have provided you with the technology you ordered so you can understand their position. Whether you used it or not is not their concern. However if they haven't suffered any damages then any claim would result in a judgment of nominal damages for usually £1.

There is nothing really for a debt collector to collect.

Hi @Gyumri thanks for your input - I just got back from holiday so apologies for the slow response but this is very helpful

 

[Newchodge]

Yes the employee has a 3 month notice period, but is also a good friend and someone who is willing for us to remploy them through another company asap. We’ll use a employer of record such as remote.com to facilitate this

If you are transferring an employee between 2 associated employers (associated because owned by the same shareholders) they can transfer with their current service intact. I'm not sure what you mean b the second sentence about employer of record.