Insolvency and closing down

Understanding when and how to close your organisation

Closing down an organisation is never easy. Whether due to financial challenges, mission completion, or strategic decisions, the process can be complex and emotionally challenging. This guide provides a comprehensive overview of the closure process, helping trustees and managers navigate this difficult terrain with clarity and responsibility.

Why would you consider closing?

Many small charities and community groups only create business plans when funders require them. However, formally documenting your organization's plans offers significant benefits beyond satisfying grant requirements:

  • Mission accomplished - Rare, but possible when all organisational objectives have been met.

  • Funding challenges - Continuous struggle to secure financial resources, key staff departures, loss of organisational momentum.

  • Strategic decision - Proactive closure before financial difficulties escalate, beginning a calculated wind-down to minimise potential complications.

Financial health warnings

Regular financial assessments are crucial. Key indicators of potential closure include:

  • Negative cash flow

  • Assets not exceeding liabilities

  • Inability to pay debts as they become due

  • Insufficient reserves

  • Potential high redundancy costs

The “Growing concern” principle

This accounting term assesses whether an organisation can continue operating without the threat of liquidation. Trustees should regularly evaluate:

  • Balance sheet strength

  • Cash flow sustainability

  • Long-term financial viability

Different closure processes

Solvent closure (when you can pay all your debts)

  • Cease trading

    • Ensure all outstanding debts can be paid

    • Include final accountancy fees and tax submissions

  • Waiting period

    • Wait three months after stopping trading

    • Prepare and submit final accounts to HMRC

  • Voluntary strike-Off

    • Apply to remove the organization from Companies House register

    • Follow official government guidance

Insolvent closure (when you can’t afford to pay your debts)

Three primary options exist:

  • Liquidation

    • Hire an insolvency practitioner

    • Costly option (typically £4,000+)

    • Recommended for complex financial situations

  • Company voluntary arrangement (CVA)

    • Negotiate with creditors

    • Develop a payment plan

    • Follow strict creditor priority rules

  • Administrative closure

    • Apply for company removal

    • Risk of HMRC intervention

    • Potential personal consequences for directors

Potential personal consequences

Directors should be aware of risks:

  • Personal liability for company debts

  • Potential 15-year director disqualification

  • Loss of limited liability protection

Recommended steps before closure

  • Prepare a detailed cashflow statement

    • Project future funding

    • Calculate contingent liabilities

    • Include; employee wage arrears, unpaid holiday pay, redundancy entitlements notice pay

  • Seek professional advice

    • Consult an insolvency practitioner

    • Get legal guidance

  • Document everything

    • Accurately minute all discussions

    • Record reasons for closure decisions

    • Protect against future challenges

  • Beware of Bona Vacantia

    If your organisation is dissolved:

    • Unclaimed assets revert to the Crown

    • Bank may transfer remaining funds automatically

    • Act quickly to redirect funds if possible

Financial closure checklist

  1. Assess total liabilities

  2. Prepare final accounts

  3. Clear bank account

  4. Distribute remaining funds (as per governing document)

  5. Notify all stakeholders

  6. Submit final tax returns

Final advice

Closure is challenging, but approach is transparently, professionally, with careful planning, and by seeking expert guidance. Remember: Responsible management during closure protects your organisation’s reputation and the individuals involved.

Further support

If you need any help with our resources, feel free to contact us. We are happy to explain them and offer training. We can even redesign the tools a bit, perhaps expand them or develop new features, because these resources are fairly basic tools and they're not designed for everyone.

You may need to amend the tools yourself a little bit to suit your individual needs as an organisation, and we would encourage you to adapt them and make the resources work for you.

We hope you enjoy them and find them useful. Providing free advice and resources helps us achieve our own charitable goal, which is to help organisations run themselves more efficiently and effectively.

Helpful reading

If you found this useful, why not try:

Rough guide to charity accounting legislation

Internal controls

Reserves basics