Dissolving a client Company? Do it right

Getting closure

Henry Catchpole has some advice on how to ensure clients comply with UK law when dissolving a company

No business will last forever, and the reality is that most companies last less than five years. In 2018 alone there were 483,800 companies removed from the UK company register. While there were 634,116 companies formed in the same period it means that for every 100 new companies formed, about 75 reach the end of their life.

There are many reasons why people may voluntarily dissolve their company and look for support from their accountant to do so. The business may have already served its purpose or the owners might want to retire but can’t find anyone to take on the business. It might be a subsidiary that’s no longer needed or an idea that just never got off the ground.

Section 1003 of the Companies Act 2006 gives the directors the right to apply voluntarily to strike off the company. Once it’s struck off, the company legally no longer exists, a fact which can be verified by searching against the company name on the public register at Companies House.

 

Dissolving a company voluntarily?

The voluntary dissolution option is only available where the company is solvent. More specifically:

  • It must have no outstanding liabilities – so all of its outstanding creditors must have been paid.
  • There must be no outstanding petition to wind up the company, insolvency proceedings or other type of order under the Insolvency Act.
  • There cannot be any existing agreements with creditors – for example a Company Voluntary Arrangement or other compromise agreement.

Furthermore, to use the voluntary strike off procedure the company must not in the last three months have:

  • Traded (or in another way carried on in business).
  • Sold property or rights owned by the business which it sold while trading.
  • Changed its name;
  • Engaged in any activities other than those required to dissolve the company, conclude its affairs or comply with a legal requirement.

 

What steps need to be taken?

Firstly, the directors need to tidy up its affairs. While these will depend on the nature of the business, tax affairs will typically need to be settled with HMRC (alongside submitting final accounts and a company tax return) and any business assets distributed between the company’s shareholders. Any bank accounts should be closed.

Companies House form DS01 must then be completed and signed by a majority of the company’s directors (which means all of them if there are only one or two directors appointed). A cheque or postal order for £10 made payable to Companies House must be submitted alongside the form.

 

Who must be told?

Within seven days of sending form DS01 to Companies House to dissolve the company, a copy of that form must also be sent to interested parties. Legally, therefore, a copy should be sent to any person who is:

  • A shareholder (or other ‘member’ of the company).
  • An employee of the company.
  • A creditor.
  • Any director who didn’t sign form DS01.
  • The manager or trustee of any pension fund established for employees

 

What happens next?

If the form is completed to Companies House’s satisfaction, a notice will be published in the London, Edinburgh or Belfast Gazette (depending on where the company is based) giving notice of the intention to strike off the company. Gazettes are the UK’s official newspapers of record, where both recent and history notices to strike off companies can be viewed.

The Gazette notice gives interested parties the opportunity – usually in a period of two months – to make an objection as to why the company should not be struck off. Valid reasons for objecting include tax fraud or another offence by the directors, an outstanding legal action or evidence that the company has failed to follow the rules for voluntary strike off (e.g. the directors have failed to inform interested parties of the proposed dissolution).

 

Can the dissolution be stopped?

The dissolution won’t proceed further if:

  • An interested party makes an objection which is upheld by the Registrar before the notice period has expired.
  • Companies House are informed by HMRC that the company has an outstanding tax liability; or
  • The directors of the company file form DS02 to halt the dissolution.

Otherwise, the Registrar will strike off the company within about two months from the notice in the Gazette. At that point, a second notice will be published in the relevant Gazette and the company will no longer legally exist, with any assets that haven’t been distributed to shareholders becoming the property of the Crown.

 

Can the company be restored?

Sometimes, well after a company has been removed from the register, a forgotten asset turns up that had been owned or was due to the company. To take proper ownership of this asset requires the company to be restored to the register. This is not a quick or simple process – always double check that there are no assets unaccounted for before concluding the dissolution process.

  • Henry Catchpole is CEO of Inform Direct

Figures quoted in this article have been taken from Inform Direct’s 2018 Company Formations Survey based on data from Companies House and the Office for National Statistics

Accounting Practice Online is part of the ICPA, which is an organisation designed to provide support and guidance for accountants in practice. With 35+ practice specific benefits there has never been a better time to join. Take a look at the routes to membership today.

Leave a Reply

Your email address will not be published. Required fields are marked *