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.
- 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.
- 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.
- 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.
- 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).
- 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)