Changes to company winding up rules

Recently, we wrote an article on whether you should disincorporate your business. It was primarily aimed at solvent businesses that might benefit from switching to a sole trader or partnership structure. One of the methods of disincorporation we covered was a Members’ Voluntary Liquidation (MVL). This is often the best winding up option for businesses that have significant retained profits. However, due to a recent High Court decision, winding up rules relating to MVLs have tightened up. In this blog post, we look at the changes and how they might affect you.

What is a Members’ Voluntary Liquidation?

If your company is solvent, there are two main ways you can wind it up.

The first is a voluntary strike off. You can do this only if your company hasn’t traded for three months. You use this form to request that your firm be struck off the Companies House Register. It costs £33 to apply online, or £44 if you submit a paper application.

The other option is a Members’ Voluntary Liquidation. This is a formal, tax-efficient process for closing a solvent company. It’s often used when shareholders want to retire, unincorporate their business, or simply close it.

An MVL is rather more expensive than a voluntary strike off. This is because it needs to be undertaken by a licensed insolvency practitioner. There are also various stages that need to be adhered to, including a declaration of solvency and a public notice that invites any creditors to submit claims against the company. That said, an MVL is intended to be more profitable than a voluntary strike off. This is because shareholders may qualify for reliefs such as Business Asset Disposal Relief.

What are the changes to the winding up rules?

ICAEW has reported on the changes to the winding up rules.

It points out that, according to the Insolvency Act 1986, a company’s debts and statutory interest must be paid within 1 year of a statutory declaration (or any shorter period that has been stated).

In August 2025, the High Court ruled that this test was not one of having enough assets available to pay. Instead, the test is whether the payment will be made within 12 months (or the shorter stated period).

The court judged that, if payment can’t be made in the relevant timeframe, the company should not use an MVL. Instead, it should opt for a Creditors’ Voluntary Liquidation – an insolvent winding up of the business.

What do the changes to the winding up rules mean for me?

If you are considering using an MVL to wind up your business, it’s a good idea to take a close look at whether you can fulfil its obligations. In particular, you need to be confident you can pay all creditors and statutory interest within 12 months. This means making sure you identify all liabilities – you don’t want to bit hit by a large and unexpected claim during the process.

The High Court ruling is being appealed, so it’s possible that it will change. You may, therefore, decide to delay winding up your business until things are clearer. ICAEW has published this interim guidance for insolvency practitioners. However, if you are a business owner and a THP client, we recommend you talk to your account manager. They will be happy to advise you.