Employment considerations when closing your business
Are you thinking of closing your business? What are the options and what are the employment considerations?
The number of firms getting into financial difficulty remains high, no doubt impacted by a global pandemic, the war in Ukraine, interest rates and the cost of living crisis.
So, what are your options if you decide to close your business and what specifically do you need to bear in mind when dealing with your employees?
Closing a solvent business
If you run a limited company and your business is currently solvent (i.e. it can pay its debts), there are two options.
- Members Voluntary Liquidation (MVL)
If you can pay all your suppliers and debts and are able to give a statutory declaration of solvency, then you can apply for an MVL.
A licensed insolvency practitioner is appointed as liquidator. You need to be able to show that your business:
- is solvent
- can pay all its taxes
- is able to pay all its creditors
- can meet all contractual obligations
An MVL is a sensible option for a business that has reached the end of its natural life – perhaps where the business was set up for a specific purpose or contract, or where the owner(s) wish to retire.
- Dissolving the company – getting the company struck off
You can get your business removed from the company register at Companies House and cease trading. To do this, you must have no ongoing legal proceedings against the business, nor be threatened with liquidation. Additionally, you must not have changed the name of your business in the previous three months.
Employment considerations – dealing with redundancies
In both of the above circumstances, if you have employees, you’ll have certain legal responsibilities to meet when closing your business. You will need to make your employees redundant. To do so, you will need to consult with your employees, follow the redundancy process and treat them fairly. See the ACAS’ redundancy guide for more information on consultation periods and the redundancy process.
In addition to any redundancy payments, your employees will also be entitled to receive other payments, such as:
- Any arrears of pay
- Holiday pay
- Overtime, bonuses and commission
- Payments in lieu of notice
Notifying HMRC
Make sure you notify HM Revenue & Customs (HMRC) as soon as possible if your business stops trading and you stop employing people.
Employees’ pensions
If you are closing your business, you also need to consider the employee pension arrangements. Whether you are terminating an occupational scheme or ending your contributions to a personal scheme, it is important to consult with employees.
Closing an insolvent company
If your company is insolvent – i.e. cannot settle its dets or has more liabilities than assets -then you can use a creditors voluntary liquidation or a compulsory liquidation.
In both of these instances the liquidator takes control of the company’s affairs and you will:
- No longer have control of the company or anything it owns
- No longer be able to act for or on behalf of the company
Selling a business
In the event you are selling your business, you will have specific responsibilities to your employees under TUPE legislation. These regulations are complex, so seek legal advice at the earliest opportunity.
Indeed, whether you are closing a solvent or an insolvent business, it is important to take legal advice throughout the process to ensure that you stay compliant, and every detail is taken care of.
For advice and support on closing a business contact us sooner rather than later.