Can I Close a Limited Company with Debts and Start Again?

Updated 22nd July 2025

 

In short:

• Yes, the same director/owner can close a company with debts and start another business, providing that certain steps have been undertaken.
• The company in debt must be closed via a creditors’ voluntary liquidation, dissolution, or compulsory liquidation.
• There are restrictions in place for the new company, including rules around the naming of any new enterprise.

 

Are you allowed to close a limited company with debts and start again?

It’s perfectly legal to close a limited company with debts and start again, however, there are strict rules to be followed. Consequences can be severe should there be any indication that the process has been done in a fraudulent manner.

If you’re the owner of a company being crushed by the weight of debt, then closing it can sometimes be the best option. Providing that you follow certain regulations, you may even be able to start a new business without having the debts of your previous venture hanging over you.

 

What are your options for closing a limited company with debts?

If all other options have been explored and you decide that an insolvent company must be closed, there are three paths available which provide the possibility of starting up a new business afterwards:

1. Creditors’ voluntary liquidation (CVL)
2. Administrative dissolution
3. Compulsory liquidation (although, this route can make starting again a little more difficult)

The first and second options are undertaken by the director(s) of the company. The third, however, is forced on the company, usually by a creditor. We’ll look at all three of these options in more depth below.

 

Company closure options explained:

1. Creditors’ voluntary liquidation (CVL)

With a creditors’ voluntary liquidation (CVL), the director of the company stops trading and instructs a liquidator (a licensed insolvency practitioner) to liquidate its assets.

Before the assets are liquidated, an analysis of the business is completed which allows the insolvency practitioner to determine if a CVL is the best route. The practitioner then drafts a report which is sent to all the company’s creditors. This allows those that the business is indebted to to submit their claims to the liquidator.

The business officially enters liquidation within 14 days of this report going out.

During this period, all creditor claims, including those put forward by employees, are dealt with by the insolvency practitioner. At the same time, the company’s assets are sold off and the reports are issued to the relevant governmental agencies.

The money realised from the asset sale is then used as far as possible to offset the bills for the liquidation process and debts. Assuming the liquidator’s investigation shows no underhanded business practice, the remaining debts are then written off.

As part of the process, the director will then be investigated by the insolvency practitioner to make sure that they’d fulfilled their duties accordingly. The director’s actions are thoroughly inspected to ensure that there has been no fraudulent activity or wrongful trading. Should the liquidator find any evidence of wrongdoing, the director could face a number of punishments ranging from prison time, a ban of around 15 years, a fine, or being held personally for the debt of the company.

 

2. Administrative dissolution

This option can be performed by the director themselves, allowing them to retain control and ensure unnecessary costs are not incurred.

As a less-intrusive process, an administrative dissolution doesn’t demand that third parties, such as insolvency practitioners, are given access into the business operations and the affairs of the directors as they are in a liquidation.

If correctly undertaken, a company dissolution has no lasting negative reflection on the directors. While usually reserved for businesses without debts, a dissolution is still a viable option for those with modest arrears.

 

3. Compulsory liquidation

Although the process is broadly similar, a compulsory liquidation differs from a creditors’ voluntary liquidation in how it is brought about. This is because the company is forced into liquidation by a creditor through a winding-up court order instead of it being a voluntary process.

Disgruntled creditors can present a winding-up petition to the High Court, with the complaint that the business in question can not pay the amount due to them. Compulsory liquidation can also be forced upon a company if they fail to file their accounts. In this scenario, Companies House will simply assume that the business has ceased trading and start proceedings to wind it up.

While the two examples above make up the majority of cases, winding-up petitions can also be applied for by shareholders, the Financial Services Authority, crown court, or the Insolvency Service’s official receiver.

 

Starting a new company after closing the old one

Starting a new company after closing the old one is usually done in the same manner as starting a completely fresh company: an application is processed at Companies House and once the new company is on the register, bank accounts and other essentials can be applied for.

However, there are a few things you’ll need to bear in mind. 

 

 

There may be restrictions on the new company

When a company is created from the liquidation of an old one with the same assets and directors, it is sometimes referred to as a ‘phoenix company’, though this term can have some negative connotations attached to it.. Liquidation expert, Ben Westoby explains that “such businesses can be controversial in the eyes of the public. While this practice is perfectly legal, there have been some directors that have abused the system and left a sour taste in the mouths of many. This is a shame though, as directors bouncing back from an insolvent business often fare far better second time around after lessons have been learnt.”

Addressing the controversy, Westoby added that “suppliers may rightly feel aggrieved at having to write off bills unpaid by liquidated companies, but at least by these insolvent firms opening back up as a different entity, suppliers are able to retain a client for long-term work.”

Those abusing the system tend to close companies and start again simply as a means of avoiding paying large bills. This is what many equate to ‘phoenixing’.

During the process of closing a company with debts and starting a new one, there are some restrictions meant to prevent directors from establishing a new company simply to escape debts without consequence.

1. Reusing the old company name for your new company

When you liquidate your old company and start a new one, there are legal restrictions in place for using the same or similar company name.

For example, if the old company was liquidated via the compulsory liquidation route, the new company cannot use a name that’s in any way similar to its predecessor.

This is according to section 216 of the Insolvency Act 1986, which deems it illegal for a person who was a company’s director or shadow director at any time 12 months before its liquidation to be involved in a company with the same or similar name up to five years after. Should a director be found to be using a similar name, they can be found liable for the debt the previous business accrued.

There are however exceptions to this naming rule:

1. Using the same name may be possible if the new company acquires the whole, or large part of the insolvent business, under the supervision of an insolvency practitioner acting as the liquidator, administrator, administrative receiver, or supervisor of a voluntary arrangement.

Before you can reuse the name in this situation, you must pass a notice in two forms under rule 4.228:

• • You must submit your details to London Gazette, the official public record, within 228 days of taking the name of the company and buying the assets of the former company from the liquidator. You must state clearly that you are the director of a new company that has the same or similar name.
  • All the creditors of the insolvent company must be informed that you are the director of a new company with a similar name

2. The new company can also request permission (called ‘leave’) from the court to reuse the name of the former company. There are two conditions that should be taken into consideration:

1. 1. The new company must apply for court leave no more than seven days after the liquidation of the old company.
   2. The leave will be granted by the court no more than six weeks from the date as mentioned earlier.

3. For the third exception, the following conditions must be met according to rule 4.230:

1. 1. The company must have been known by the name for at least 12 months before it was liquidated.
   2. The company must not have been placed in dormancy at any point in the last 12 months.

 

2. HMRC may require a security deposit

Should HMRC believe for any reason that there is a possibility that your new company will fail to pay its tax on time, you may be required to provide a security deposit such as a bond or fixed security payment.

If you are unable to pay your taxes to HMRC, then they’ll settle the balance with the security deposit. Assets such as property or other items of high value cannot be used as a security deposit.

 

3. Goods and assets must be sold at the correct value

Selling the assets of the old company at a price lower than their market value is a fraudulent act. 

It is vital to ensure that the business sale is legitimate as creditors can argue against the sale of assets at a discounted price. This means that any assets purchased by the new company from the old business must be at a fair and legitimate price.

 

4. Transferring employees 

TUPE regulations are not applicable to employees that are transferred to the new company from an old business that was closed via compulsory liquidation or CVL. Because of this, contract terms, working hours and other benefits can easily be changed without being seen as unfair amendments.

 

5. Personal guarantees still apply

One of the benefits of running a limited company is that directors aren’t personally responsible for company debts. As the business becomes its own legal entity, it is the company itself that is liable.

However, if the owner signs a personal guarantee as the company’s director, they become personally responsible should the business be unable to pay its debts. The liquidator will also pursue directors that have an overdrawn director’s loan account.

 

6. Limited credit accounts

As a result of poor credit history and potentially frayed relationships with creditors, it is unlikely that previous suppliers will be keen to provide credit account for a phoenix company. Directors may need to put extra security in place to allay any fears, such as tighter terms or payment in advance.

 

Get free advice on restarting your company today

If your company is struggling with unmanageable HMRC debts, poor cash flow, or an uncertain future, it may be better to start again.

We speak to company directors struggling with the same issues as you every single day, and we are here to give you the help and guidance you need.

If you need some advice on which would be the best option for you why not take advantage of a free consultation, please call us on 0800 975 0380 today or email advice@forbesburton.com