Striking off a company: Get the details right

Jennifer Adams outlines the procedure for striking off a company in the first of a series of articles exploring methods to end a company. 

Rex Stout said: "There are two kinds of statistics, the kind you look up and the kind you make up". Companies House’s ‘Statistical Tables on Companies Registration Activities’ is of the first kind - the numbers are based on facts. Of the 348,500 companies removed from the register for the current year to date, 95% were removed using the informal route of being struck off; no doubt many using the soon to be replaced Extra Statutory Concession (ESC) C16 (‘Dissolution of companies under Section 652, Companies Act 1985: distributions to shareholders’). 
 
This article will detail the procedure for striking off a company as understood to date; subsequent articles will cover other methods of ending a company.
 
When used
  • Companies Act (CA) 2006 s1000 - gives the Company Registrar the legal right to strike off a company if he has reason to believe it is no longer in business. Proof will be in the form of failure to submit accounts and/or non response to letters sent to the company’s registered office.
  • CA 2006 s1003 gives the directors the right to apply for the company to be struck off. There is a three-month grace period when the procedure cannot be used if, prior to application, the company changed its name, traded, disposed of property or rights or commenced insolvency.
Procedure
  • Convene a board meeting and minute what the company has paid or will pay all of its outstanding debts or obligations.  
  • If necessary, arrange for members to approve a special resolution recording any reduction in share capital and for all directors to sign a solvency statement (dated no more than 15 days before the resolution is passed). Send a copy of the resolution within 15 days of being passed to Companies House plus solvency statement, statement of capital showing the changes and a director’s statement confirming the validity of the solvency statement; the resolution takes affect when registered.
  • Apply to HMRC for ESC C16 clearance (see below) by submitting a final set of accounts, computations and CT600 with letters confirming the ESC C16 requirements and undertakings of both shareholders and directors. If the directors are the main/only shareholders only one letter is necessary but the signatories should have both ‘director’ and ‘shareholder’ written under their names as appropriate. The company does not have to wait for a response from HMRC (although it may be advisable to do so) before paying all liabilities, distributing remaining assets to shareholders and
  • Submitting completed form DS01 (plus £10 filing fee) to Companies House signed by all directors (or the majority if there are three or more). Paper form only.
  • Within seven days of submission send a copy of the DS01 form to all interested parties (for example employees, creditors, manager of company pension fund etc).
  • Deregister for VAT, if relevant.
  • On receipt of form DS01 the registrar will publish a notice in ‘The Gazette’ inviting objections as to why the company should not be struck off.
  • If no objections within three months of publication a further notice is published confirming that the company has been dissolved.
ESC C16 
  • Striking off is not a formal winding up and as such any distribution of surplus assets (including the repayment of its share capital represented by those assets) using this method is legally an income distribution but providing certain conditions are met, ESC C16 is the tax concession that allows such distributions to be treated as capital instead, possibly attracting Entrepreneurs Relief. 
  • HMRC intend to abolish ESC C16 (as they believe the concession is used for avoidance purposes) and replace with a new statutory rule capping the amount treated as capital at £4,000 which is, incidentally, the same limit as previously used by the Treasury Solicitor under ‘Bona Vacantia’ (see below). This means that distributions in excess of this limit will be taxed as income not capital.
  • If the proposed change becomes law then a formal members' voluntary liquidation will be the only way of a distribution being a capital receipt for amounts in excess of £4,000 but a liquidation might cost this in legal fees. 
Bona Vacantia
  • Technically the distribution is illegal as under CA 2006 s 829(2) - ‘distribution’ does not include ‘the repayment of paid-up share capital’, or ‘assets to members on winding up’. Instead it belongs to the Crown under the doctrine of Bona Vacantia (property without a legal owner). The Treasury Solicity confirmed this letter in early November to the ICAEW Tax Faculty.
  • Until 14 October 2011 if the total distribution was less than £4,000 the Treasury Solicitors’ Office did not consider it to be cost effective to take action to recover such payments. Post 14 October they will not attempt to recover ANY amount.
  • The reason for their change of heart is because the new Companies Act Capital Reduction procedure (as detailed above) has made it easy for a company to reduce its share capital and distribute lawfully (CA 2006 (s642 to 644); Regulations (The Companies (Reduction of Share Capital) Order, SI 2008 No 1915).
Current position
  • Subject to ESC C16 clearance being granted, surplus assets can be paid to shareholders without limit and that distribution will be treated as capital. The right to Bona Vacantia has not ceased - it is just that the Treasury Solicitor will not be collecting.
  • The December 2010 consultation document on the future of ESC’s suggested imposing a ceiling of £4,000 on the amount of distribution made at the time of dissolution that will be allowed as capital - ESC C16 currently imposes no limit.

However watch this space...

News update: Treasury Solicitor flip-flops on bona vacantia (confirming the substance of this article on bona vacantia and explaining the background)

Comments

Bona Vacantia

Andrew.999 | | Permalink

I think there's a typo in the second bullet point of this section.  They WILL potentially seek to recover any amount post 14 October 2011.

Printing out articles like this    2 thanks

forgeron | | Permalink

Why is there no longer a printer-friendly facility like there used to be before the new format came in?

I used to find it very usefuil to print out articles like this without all the ads etc.

Bona Vacantia

colinwain | | Permalink

No typo, the bullet point is correct.

Printer

morganfrazer | | Permalink

Try copying to word, then print.

Hope this helps.

Morgan

Printing    3 thanks

forgeron | | Permalink

Thanks, morganfrazer!

In fact I just noticed that there is in fact a print facility just next to the comments box right at the top, next to the name of the poster etc.  It's just that I'd never seen it before despite looking!

Bona Vacantia

teginton | | Permalink

No -  I think that the article is correct.  If there was a change as happened  (at 7 day's notice and no consultation), it would clearly be unfair to make things worse.  The change has relaxed the position and, subject to HMRC changing the ESC, there is an opportunity to wind up companies cheaply.

A charter for swindlers    1 thanks

mickeyparish | | Permalink

This is fascinating:  Companies House carry out no checks to make sure that creditors have been paid, and they also refuse to take action even when it can be proved that directors acted illegally ( i.e proceeding with striking off in the knowledge that creditors remain unpaid ).

Since shareholder capital can now be repaid unchallenged, there is now nothing to stop anyone setting up a new company with a reasonable capital, say £10,000 - an amount which will draw little attention, and therefore have a solid looking balance sheet, find some mug to give them a few thousands credit, then pay themselves the creditor's cash, apply for striking off, recover their share capital, and be fireproof thereafter.

The perfect crime ? Commission in a brown envelope please....

....it would be but when doing the DS01 you have    1 thanks

justsotax | | Permalink

to advise any creditors - who will presumably then dispute the striking off....can i have my brown enevelope back please......

Don't advise creditors?

HudsonCo | | Permalink

A debtor applied to strike off without notifying me. Fortunately I spotted it and have delayed it by pending legal action but, in the meantime, directors have removed assets from company. Court says I have no claim against director who took cash and stock.

Why reduce the share capital ?

halblackburn | | Permalink

As the Treasury Solicitor will not attempt to exercise its right to bona vacantia the second bullet point of the above procedure appears to be redundant; there is now no reason to reduce the share capital immediately prior to requesting an ESC16 or a striking-off.

Don't advise creditors

mickeyparish | | Permalink

Why would you advise creditors if no one checks up on you ? You can even proceed to strike off with a CCJ against your name.  There are no checks and no consequences.  You won't be prosecuted.

Bono vacantia

nigel_price | | Permalink

I thought the Treasury Solicitor had simply withdrawn the £4,000 concession, which implies they will seek to recover? Can anyone point to a pronouncement from the Treasury that confirms they really will not recover any amount?

Bono vacantia - (nigel_price)

halblackburn | | Permalink

The relevant document used to be guideline BVC17 but it has disappeared from the Bona Vacantia website; BVC16 is now followed by BVC18.

The old version of BVC17 (as copied on 14 December 2010) is available at:-

http://web.archive.org/web/20101214164705/http://www.bonavacantia.gov.uk/output/BVC17-Distribution-of-Company-Share-Capital.aspx

but the 14 October 2011 document is at:-

http://www.bonavacantia.gov.uk/output/bvc17-faqs.aspx

Hope this helps.

JAADAMS's picture

14 Oct 2011 clarification

JAADAMS | | Permalink

Take a look at John's article 'Treasury Solicitor flip-flops on 'bona vacantia'' but also look up the link below. The bods at ICAEW couldn't get their heads round the announcement either so asked for clarification. The article is right!

http://www.ion.icaew.com/TaxFaculty/23350 

carnmores's picture

on the other side of the coin

carnmores | | Permalink

lets not forget that there is now an easier way of restoring a company without recourse to the courts. in the old days VAT man used to make a habit of restoring and winding up on the same day, something that i thought was an abuse of process for  a number of reasons

Thanks

nigel_price | | Permalink

Thank you folks - someone needs to tell Giles Mooney!

Nichola Ross Martin's picture

Clearance - waiting to hear from HMRC

Nichola Ross Martin | | Permalink

I would suggest that you would be very stupid not to wait to hear from HMRC because if you do not get clearance for ESC C16 you may have to change your plans.

Its rare, but HMRC can use the Transactions in Securities provisions to block capital treatment of distributions.

 

Print

BigBri | | Permalink

I see and use the facility. I would like to choose to include the comments without having to resort to copying and pasting to word.

advice please - striking off    1 thanks

jezzarich | | Permalink

Hi can anyone advise me of the accounting transactions in the following example:

Co A owns 100% Share capital in Co B with a cost of investment of £200k.

Co A owes £300k to Co B arising from a transfer of its assets 15 years ago when Co A took over. Co B has been dormant ever since.

Co B has SC of £200k, P&L reserves of £100k and the interco recble of £300k.

We wish to strike off or liquidate Co B. What is the best way? We assume risk of other liabilities or off balance sheet assets in Co B is minimal.

Does Co A have to settle (without passing cash) the interco debt, allowing Co B then to dividend up all bar £1 of the SC back to Co A? Co A also writes off the investment so has a net £100k credit to P&L. Or is there a restriction of what can be divid up?

Or can the interco debt be written off and the SC in Co B is reduced against the negative P&L reserves before strike off? Same effect in Co A.

 

I need some advise, if I

phsAcc | | Permalink

I need some advise, if I allow companies house to dissolve the
business, will I be liable for the outstanding debts or do they die
with the company

Need some advice, If someone allow Companies House to dissolve his company with only liability of penalties imposed by the Companies House on non-submission of accounts, will the penalties automatically written off at the time CH’s action to struck the company off?