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A formal liquidation can be seen as an unnecessary expense when a company ceases business. This is especially true for small companies where the owners will not want to incur several thousand pounds of fees simply to realise the profits of their business.

The Companies Act 2006 does offer an alternative to the formal liquidation process. This is an informal winding up, and is done by the company applying to Companies House to strike the company off the register. The strike-off procedure can be a low cost, simple way to dissolve a company, but it will only be suitable if the company is solvent, the company’s affairs are relatively simple to close down and if its assets are relatively easy to distribute. In more complicated circumstances, it may be more suitable to use a members’ voluntary liquidation (MVL), see the Closing a company down ― members’ voluntary liquidation (MVL) guidance note. In addition, the tax treatment of the amounts distributed on the dissolution of the company means that an informal winding up is usually only tax efficient