What does it mean when a company has ceased trading and what are the potential ramifications for the creditors and company directors? In this guide, we’ll help you understand what happens when a company ceases to trade.

chat with an insolvency expert
Our expert team is at hand right now to speak via live chat, or telephone 0208 444 3400. All communication is confidential, and the first consultation is entirely free.

What Does It Mean When A Company Has Ceased To Trade?

A company that has ceased to trade has stopped all business, made employees redundant, is selling off business assets and is likely to be in the process of closing down. 

Importantly, a company that has ceased to trade is not the same as a company that has been dissolved (no longer exists). A company that wants to close must cease trading before it can do so. However, the process of closing a limited company can take time. At this point, the business is effectively dormant. It is not doing any work but it is still a legal entity in its own right as it is still registered at Companies House. 

Why Might A Company Cease To Trade?

There are lots of reasons why a business might cease to trade. It could be that the company directors want to retire and there is no one to carry the business on, or simply that the directors want to move on to something new. Alternatively, the business may no longer be financially viable and the directors have decided to cease trading voluntarily so that it can be closed down.

In some cases, an insolvent business may be forced to cease trading by its creditors (parties it owes money to). If the company does not pay the money it owes to creditors such as trade suppliers or HMRC, they can take legal action in the form of a winding up petition. A judge will hear the case and if they rule against the insolvent business, a winding up order will be made and the company must cease trading immediately before being closed via compulsory liquidation

What Happens When A Limited Company Ceases To Trade?       

When a limited company ceases to trade, all business comes to an end. Employees are made redundant, outstanding debts must be repaid and the assets of the business will be sold. If the business is solvent, the proceeds of the sale of assets will be distributed among the shareholders according to their percentage of the shareholding. If the business is insolvent, the money raised by the sale of company assets will be distributed between its outstanding creditors. The company can then be registered as dormant or removed from the Companies House register, in which case, it will cease to exist.

What’s The Easiest Way For A Limited Company To Cease Trading?

You might assume that ceasing trading as a limited company is a simple way to close your business. However, there are rules and regulations that must be followed, which can make the process quite complex and require the assistance of an insolvency practitioner.

  • If the company is solvent – The simplest way to close a solvent limited company is via a process called striking off. Before you can strike off a business you must complete all outstanding work, collect all monies due, make employees redundant, prepare the final accounts and a company tax return and repay all outstanding debts. You must then complete form DS01 to strike the company off the Companies House register.

Alternatively, if the business has significant assets, a members’ voluntary liquidation could be the most tax-efficient way to close it down.

  • If the company is insolvent – If the company is insolvent, a formal insolvency procedure called a creditors’ voluntary liquidation might be necessary to close it down. An insolvency practitioner will have to be appointed to act as the liquidator. They will sell the business’s assets and distribute the proceeds among the company’s creditors before striking it off the Companies House register. 

This process is less likely to lead to personal liability issues or director disqualifications, making it preferable to ceasing trading and waiting for the business to be closed down by a creditor via a compulsory liquidation.

How Do I Get My Money Back From A Business That Has Ceased Trading?

If you are owed money by a company that has ceased trading, the action you should take depends on the circumstances the business is in. If the company is solvent and is being struck off, all creditors should have been notified by the company director and have been told how to make a claim. To make a claim, you should get in touch with a company director and provide proof of the debt.

If the company has ceased trading because it is insolvent, the official receiver or insolvency practitioner acting as the liquidator will be in touch to tell you how to make a claim. If you’ve not heard from the liquidator, you’ll need to register as a creditor. To do that, you should contact the liquidator handling the case and tell them you’re owed money. You’ll be able to find their details on the Companies House website. If you’re owed more than £1,000, you’ll also need to submit a ‘Proof of Debt’ form.   

How Do You Notify Hmrc That Your Company Has Ceased To Trade?

If your company is no longer trading, you’ll need to inform HMRC. You can do that by contacting your local corporation tax office and stating the date when your company ceased trading. You’ll be able to find the contact details for your local corporation tax office on HMRC correspondence or by calling the corporation tax helpline on 0300 200 3410.

HMRC will ask you to complete and submit a company tax return and pay any corporation tax outstanding for the period. If the business is registered for VAT, you must tell HMRC that you are no longer selling the goods that are VAT taxable and that you want to cancel your VAT registration. You will be asked to file a final VAT return and pay any VAT due. Your VAT registration should then be cancelled within 30 days.   

Have You Decided To Cease Trading?

Seeking the help of a licensed insolvency practitioner will help you close your solvent or insolvent company in the right way and protect your position as a director. Please get in touch on 0208 444 3400 or submit an enquiry form for free and confidential advice.