Can I Liquidate my Limited Company and Open a New One?

Faced with overwhelming debt and a desire to start afresh, liquidating an existing company and starting a new one might seem the best option for directors.

However, is that option possible and how feasible is it?

This article will explore the question ‘can I liquidate my company and start again?’ by examining the possibility of doing so, and the likely considerations to be made before taking that decision.

Can you liquidate an existing company and start a new one?

In a nutshell yes; you can liquidate your company and start again.

However, that procedure is easier said than done.

Liquidation, the process by which you terminate operations and dissolve a company, is not a simple process.

There are three types of liquidation:

• Creditors’ voluntary liquidation or CVL, whereby the directors of the company initiate insolvency proceedings in order to pay back its creditors.
• Members voluntary liquidation or MVL, whereby a solvent company, i.e. a company that can afford to pay off its debts, is ended.
• Compulsory liquidation, whereby a company is issued a winding-up order by the court, usually initiated by a creditor seeking debt repayment.

If the goal is to end an existing company in order to start a new one, it’s best to consult with insolvency experts who will assess the health of the company and advise directors on the best course of action for liquidation proceedings.

Once liquidation proceedings are completed, there is nothing precluding you from starting a new company.
While the answer to the question ‘Can I liquidate my company and start again?’ is a yes, there are several limitations to that plan, because your new company was started following the dissolution of an old company.

1. The name of the new company: Section 216 of the Insolvency Act 1986 limits directors of a dissolved company from starting another company with the same (or very similar) name. This law is meant to prevent the directors from continuing the operations of the previous company as a new company, while avoiding the debt repayment obligations of the old company.

2. Purchase of assets from the old company: If the new company is interested in purchasing the assets of the old company, the assets must be sold at market value. While this rule is subject to exceptions – namely if the old company is experiencing financial troubles which require a quick sale at a lower price – it’s generally regarded as fraud to sell assets of your old company to your new company at a heavily discounted rate.

3. Taxes: Depending on the circumstances of your previous company’s financial situation and subsequent liquidation, HMRC may require a security deposit be paid on your new business. This deposit serves as protection on their end against the perceived risk of nonpayment of taxes in the future. In the event that the new company fails to pay its taxes, it will be paid using this deposit.

These are only some of the limitations that can be faced if you intend to liquidate your current company to start a new one.

The only way to decide whether liquidating an old company and starting a new company is the best option is to consult with an insolvency practitioner.

Irwin Insolvency has more than 25 years’ experience guiding companies through the liquidation process.

For more information on dissolving your company and starting anew, contact Irwin Insolvency today.