The short answer
To close a limited company that owes money it cannot pay, the proper route is a Creditors’ Voluntary Liquidation (CVL) — a formal procedure run by a licensed insolvency practitioner that deals with the debts and closes the company correctly. A voluntary strike-off is not appropriate when the company is insolvent: creditors such as HMRC can object, restore the company, or petition to wind it up.
It can be tempting to simply dissolve a company and walk away, but that is not lawful while it owes money. The correct route for an insolvent company is a formal liquidation. This guide explains why, what the process involves, and what it costs in 2026.
Closing with debts at a glance
- Proper route Creditors’ Voluntary Liquidation
- Wrong route Strike-off while insolvent
- Run by A licensed insolvency practitioner
- Typical CVL cost £4,000–£6,000 +VAT
- Debts cleared on dissolution Unpaid balances written off
- Risk of strike-off Objection, restoration, winding up
First, check the company really is insolvent
Before choosing a route, it is worth confirming the company is genuinely insolvent. The two legal tests are the cash-flow test — whether the company can pay its debts as they fall due — and the balance-sheet test — whether its liabilities exceed its assets. If the company can in fact pay everyone, it is solvent, and you can close it through a simple strike-off or, where there is a surplus to extract tax-efficiently, a members’ voluntary liquidation. The route in this guide applies specifically where the company cannot pay its debts.
Why a CVL is the proper route
When a company cannot pay its debts, the law expects it to be wound up through a formal insolvency procedure rather than quietly dissolved. A creditors’ voluntary liquidation appoints a licensed insolvency practitioner to deal with the debts fairly: realising any assets, agreeing creditor claims, distributing funds in the correct order, and investigating directors’ conduct. Once complete, the company is dissolved and any unpaid balances are written off — provided there are no personal guarantees or director liabilities. It is the route designed for exactly this situation, and following it gives both creditors and directors certainty that the closure was handled lawfully.
Why strike-off is not appropriate
A voluntary strike-off via Companies House is designed for solvent, dormant companies that have paid everyone. Using it to escape debts is not lawful and rarely works:
- Creditors can object — HMRC routinely objects to the strike-off of a company that owes tax.
- Restoration — a creditor can apply to restore a struck-off company to pursue the debt.
- Winding-up petition — a creditor may issue a winding-up petition instead, forcing a court-led liquidation.
- Conduct risk — trying to dissolve to avoid debts can count against directors in any later investigation.
| Option | When it fits | With debts? |
|---|---|---|
| CVL | Insolvent company being closed | Yes — the correct route |
| Strike-off | Solvent, dormant, debts cleared | No — not appropriate |
| MVL | Solvent company with a surplus | No — solvent only |
The director’s position when closing with debts
Closing an insolvent company correctly also protects you. The moment a company becomes insolvent, a director’s duty shifts to acting in the interests of creditors rather than shareholders. Going through a proper CVL demonstrates that you took that duty seriously: you stopped trading at the right point, treated creditors fairly, and brought in a licensed professional. By contrast, attempting to dissolve a company to dodge its debts can be treated as misconduct and counts against you in the liquidator’s conduct report. Where you have signed personal guarantees, those obligations continue regardless of how the company is closed — another reason to take advice early.
What it costs and who pays
A small-company CVL typically costs £4,000–£6,000 plus VAT, normally paid from the company’s assets — or by a director contribution where there are none. That is usually far less costly than the consequences of an improper strike-off. For a full breakdown, see our liquidation cost guide.
Need to close a company that owes money?
A licensed insolvency practitioner can close it properly through a CVL and deal with the debts. A confidential call gives you a clear plan and a real figure.
Frequently asked questions
Can I just strike off a company with debts?
No — strike-off is for solvent, dormant companies. With outstanding debts, creditors such as HMRC can object, restore the company, or petition to wind it up.
What happens to the debts when I liquidate?
Company debts that cannot be paid from assets are written off on dissolution, unless they are personally guaranteed or involve director liabilities.
How much does it cost to close an insolvent company?
A small-company CVL typically costs £4,000 to £6,000 plus VAT, paid from assets or by a director contribution where there are none.
Will closing the company clear my personal guarantees?
No — liquidation clears company debts, but personally guaranteed debts remain payable by you.
Sources & further reading
- GOV.UK — Liquidate your limited company
- GOV.UK — Strike off your company from the register
- Insolvency Act 1986 — creditors’ voluntary liquidation
- The Insolvency Service — guidance for company directors
- ICAEW / IPA — licensed insolvency practitioner registers
This guide is general information, not formal insolvency advice. Your situation must be assessed by a licensed insolvency practitioner before you act.