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What does it mean when a company has ceased trading?

Companies can cease trading for various reasons including a director’s retirement or ill health, ongoing financial problems, or simply because the company serves no further purpose.

When a business is profitable, ceasing to trade can be a precursor for closing down the company via dissolution or Members’ Voluntary Liquidation (MVL). In an insolvent scenario, directors have a legal obligation to cease trading in accordance with insolvency laws.  

What happens when a company ceases to trade?

When a company ceases to trade, business stops, employees can lose their jobs, and assets are sold.

  • If trading has ceased voluntarily, funds from the sale of assets are distributed among shareholders when all creditors have been repaid.
  • If the company is insolvent, however, a licensed insolvency practitioner (IP) is appointed to deal with the company’s affairs and assess whether it can be rescued or sold as a going concern – in this case some jobs may be saved. If business rescue isn’t an option, assets are sold to repay the company’s creditors as far as possible, following a strict order of priority set out in legislation.  

Creditor claims when a business has ceased trading

If you’re owed money by a company that has ceased trading, initially you need to find out the circumstances in which the business has stopped trade. If it’s being dissolved, you should have been notified by the director(s) and can make a claim by providing proof of your debt. Trading may have ceased due to insolvency, however, in which case you should contact the office-holder to register as a creditor and make a claim for repayment.

For more information on the implications of a company ceasing to trade, call one of the team at Begbies Traynor. We offer free same-day consultations and will quickly assess your best options.

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Insolvency Practitioners Association Institute of Chartered Accountants in England and Wales R3: Association of Business Recovery Professionals ICAEW Business Advice Service Turnaround Management Association ACCA (the Association of Chartered Certified Accountants) ICAS | The Institute of Chartered Accountants of Scotland

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