Can I close a limited company with debts? A Complete Guide
- adambrassington85
- May 6
- 5 min read
Updated: May 9
Written by Adam Charles
Summary
Yes, you can close a limited company with debts and start again, but only if you follow the correct legal process and appoint an insolvency practitioner (IP) to act on your behalf.
If the company is insolvent, you must use a formal insolvency procedure such as a Creditors’ Voluntary Liquidation (CVL). Directors can usually start a new company afterwards, provided they haven’t acted fraudulently or wrongfully.
This guide explains everything you need to know about closing a limited company with debts and how to do it.
Can You Close a Limited Company With Debts?
Yes, but the method depends on whether the company is insolvent or still able to pay some debts.
If the company is insolvent (cannot pay its debts) - you need a formal liquidation, usually a CVL, handled by a licensed insolvency practitioner such as ourselves.
If the company is solvent (can pay its debts) - you can close it using a Members’ Voluntary Liquidation (MVL) or a voluntary strike‑off.
Can You Start a New Company After Closing One With Debts?
Yes, in most cases, directors are free to start a new company immediately after liquidation. However, there are rules:
You can start again if:
You acted responsibly as a director
You didn’t take deposits you knew you couldn’t fulfil
You didn’t continue trading while insolvent
You cooperate with the liquidator
You cannot start again if:
You are disqualified as a director
You committed fraud or wrongful trading
You misuse the old company name
How to Close a Limited Company With Debts (Step‑by‑Step)
1. Stop trading immediately
Continuing to trade while insolvent can lead to personal liability.
2. Speak to a licensed insolvency practitioner
They will assess whether CVL, administration, or another route is best.
3. Enter a Creditors’ Voluntary Liquidation (CVL)
This is the most common route for insolvent companies. A CVL will:
Legally close the company
Write off unsecured debts
Stop creditor pressure
Allow directors to start again (if compliant)
4. The liquidator sells assets and deals with creditors
You no longer manage the company — the liquidator does.
5. The company is dissolved and debts cleared
Once dissolved, the company no longer exists and debts die with it (unless personally guaranteed).
What Happens to the Company Debts?
Unsecured debts:
These are written off when the company is liquidated.
Secured debts
Lenders may repossess assets tied to the loan.
Personal guarantees
If you signed one, you remain personally liable.
Bounce Back Loans
Written off in liquidation, unless fraud is found.
Can I Close a Company with Debts to HMRC?
Yes, you can close a limited company with HMRC debts using a Creditors’ Voluntary Liquidation (CVL). HMRC becomes an unsecured creditor, meaning they receive a share of any asset sale, but the remaining balance is wiped when the company is dissolved.
HMRC will not chase you personally unless:
You committed fraud (e.g., deliberately not paying VAT)
You continued trading while insolvent
You misused PAYE/VAT money
You took deposits knowing they couldn’t be fulfilled
Most directors who acted reasonably face no personal liability for HMRC debts.
Can Directors Be Held Personally Liable For Company Debts?
Most directors who acted reasonably face no personal penalties. Only in specific situations can personal liability arise, such as:
Wrongful trading
Fraudulent trading
Misuse of company funds
Unpaid PAYE/VAT due to misconduct
Personal guarantees
Can I Start a New Company After Liquidation?
Yes — and many directors do. It’s legal, common, and often the best way to move forward.
You can start a new company if:
You follow the liquidation process correctly
You don’t reuse the old name without permission
You weren’t disqualified
How to Start a New Company After Liquidation
1. Choose a new company name
Avoid anything too similar unless you follow the phoenix rules.
2. Register the new company with Companies House
This can be done online in minutes.
3. Set up proper financial controls
To avoid repeating past issues.
4. Avoid personal guarantees where possible
Negotiate alternatives with lenders.
We're Here To Help You Close Your Company and Clear Your Debts Compliantly
We offer a free, no obligation insolvency consultation with one of our qualified insolvency practitioners (IPs). We aim to first understand your circumstances so that we can provide you with a clear path to close your company and clear its debts. If you choose to go ahead, we offer one of the quickest and lowest cost liquidation services available.
FAQs: Closing a Limited Company With Debts
What happens if I try to strike off a company with debts?
Creditors can block the strike‑off, issue legal action, or petition the court to wind up the company. HMRC is particularly quick to object to strike‑off applications when tax is owed.
Will I be personally liable for company debts?
In the majority of circumstances no, you will not be personally liable providing you follow the correct legal process. If you get in touch our team will advise you on this - we offer a free no obligation consultation.
What happens to HMRC debts when closing the company
HMRC will object to strike‑off if any tax is owed (VAT, PAYE, Corporation Tax). In a CVL, HMRC becomes a secondary preferential creditor, meaning they are paid before many other creditors. Any remaining unpaid tax is written off when the company is liquidated — unless director misconduct is found.
How much does it cost?
Closing a limited company and clearing its debts using a CVL typically costs between £1,999 - £3,999, depending on the complexity of your circumstances. We offer the lowest cost liquidation service - that's our promise.
How long does it take to liquidate a limited company?
Most limited company liquidations can be complete within 1 month, however it can take longer depending on the complexity of your situation.
What is the correct way to close a company with debts
The formal route is a Creditors’ Voluntary Liquidation (CVL) - this is the safest and most common option for insolvent small and medium companies.
In a CVL:
Directors choose an insolvency practitioner
Trading stops
Assets are sold to repay creditors
Remaining unpaid debts are written off
Directors avoid the risks of forced liquidation
Conclusion
Closing a limited company with debts is possible, but it must be done through a formal insolvency process such as a Creditors’ Voluntary Liquidation. When a company cannot pay its bills, directors are legally required to prioritise creditors and stop trading. A licensed insolvency practitioner will close the company, sell any assets, deal with creditors, and ensure all remaining unsecured debts are written off. This protects directors from the risks of wrongful trading and prevents HMRC or other creditors from forcing compulsory liquidation. For many struggling businesses, liquidation offers a clean, compliant way to clear company debts and move forward without personal liability.
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About the author
Adam Charles is a UK expert in business closure, HMRC debt solutions, and company insolvency, specialising in helping directors understand their legal duties and the most effective routes to closing or restructuring a struggling business. His experience includes negotiating with HMRC, handling tax arrears, and advising on liquidation and director protection.
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