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
Assess total liabilities
Prepare final accounts
Clear bank account
Distribute remaining funds (as per governing document)
Notify all stakeholders
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.
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