Treasury Solicitor flip-flops on bona vacantia

The mechanics of extracting capital and winding up a business were thrown into confusion during the past month after the Treasury Solicitor initially put aside the long standing concession under which it would not recover capital of less than £4,000 from struck off companies, and then changed its mind.

The fun started in October when the Treasury Solicitor announced it would  withdraw the bona vacantia concession from 14 October 2011.

When a company is struck off under HMRC’s Extra Statutory Concession ESC C16, its assets are classed as being without a legal owner and so belong to the Crown under the doctrine of bona vacantia. Under CA 2006 s 829(2) distributing these assets is illegal, but due to the impracticalities involved, the Treasury Solicitor historically did not go after amounts under £4,000.

Very quickly the Net was buzzing with people considering the implications of the change. As Paul Scholes and Nichola Ross Martin explained on AccountingWEB, the prevailing advice was to reduce the company's share capital to a nominal £1 before going for strike off under chapter 10 of CA 2006.

Given the avalanche of queries on the subject, Jennifer Adams set out to clarify the situation for her guide to striking off a company. While researching the precise legal situation, she discovered a subsequent message from the Treasury Solicitor published on the ICAEW Tax Faculty website that said: “The Treasury Solicitors’ Office has now totally rewritten their guidance and stated categorically that they will not take action to recover share capital under bona vacantia.”

While the right to recall unauthorised share capital of struck-off companies would still vest in the Crown, the Treasury Solicitors’ guidelines confirm that they will not attempt to recover any unauthorised distributions of share capital prior to dissolution.

Continued...

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Comments
nogammonsinanundoubledgame's picture

Errrmmmm...

nogammonsinanun... | | Permalink

... does this mean that they will not go for share capital where in excess of £4K now?

“The Treasury Solicitors’ Office has now totally rewritten their guidance and stated categorically that they will not take action to recover share capital under bona vacantia.”

With kind regards

 

Clint Westwood

Paul Scholes's picture

Reality Rules

Paul Scholes | | Permalink

As acknowledged there is no reporting mechanism whereby "strikers off" have to notify the sums involved and so what's the point in TSol trying to impose the law, besides which, if they ever did try and impose it it's easy (again as acknowledged) to reduce the share cap to £1 thus, again, not making it worth their while.

Reality & common sense prevail....cool.

Now to HMRC and ESC C16, will they really force us to line the pockets of insolvency practitioners, just to distribute all the money as capital?

 

Unfair to TSol?

DavidW878 | | Permalink

I think you are perhaps being unfair in attributing indecision to TSol. It is unfortunate that a number of articles published in the professional press at the time of the 14 October change stated or implied that TSol would seek to collect illegal pre-strike-off share capital repayments even if they were less than £4,000. But I do not believe that the FAQs published at that time gave unequivocal support for that view: at worst the TSOl piece was unclear. When we sought clarification from TSol they readily gave it and clarified the FAQs, following which we gave wide publicity to the clarification via our BrassTax ewire.

Not enforcing the law

BSSRoberts | | Permalink

I love the idea that if the Treasury Solicitors Office is not going to enforce the law then everything is OK.  As far as I am aware nobody enforces 90% of the Companies Act but that doesn't give us the right to ignore it! 

Furthermore, what happens later when somebody does decide to enforce it?

esc16

david5541 | | Permalink

why cant hmrc just forget about abolishing esc16 since it is not taking up much space in the statute book is it?

this sounds just like the tail(hmrc) wagging the proverbial dog(tsol)!

adoggett's picture

ESC 16

adoggett | | Permalink

Just like a lot of little children, not knowing where to go.. why not just leave the thing alone; it worked well, solved all the problems and everyone knew exactly where they were. The economy is in recession and worse to come, and we are fiddling around with rules which work... Who had the bright idea to change it in the first place!

ESC16

George Christie | | Permalink

 

In the first instance, any permitted distributions in accordance with the section 652A CA1985 or section 1003 CA2006 clearly states that the amount of any authorised distribution without a formal winding up to be less than £4,000.  If and assuming Bona Vacanta are agreeing with ESC16, that is fine, as this only confirms that the treasury solicitor will allow the concession under tax law, however there is an upper limit states within section 1003, CA2006,  therefore who is right... HMRC, HM Treasury or Companies Act?  What a mess!!!

Nick Graves's picture

Yes, it worked great but;

Nick Graves | | Permalink

adoggett wrote:

Just like a lot of little children, not knowing where to go.. why not just leave the thing alone; it worked well, solved all the problems and everyone knew exactly where they were. The economy is in recession and worse to come, and we are fiddling around with rules which work... Who had the bright idea to change it in the first place!

The politiciunts desperately need to be seen to be doing something, whilst in fact doing nothing of any consequence.

Expect a LOT more of this fiddling around from your wicked uncle Ernie... 

 

 

Paul Scholes's picture

It worked great for who?

Paul Scholes | | Permalink

Nick - you show your age with that ref to Uncle Earnie!

Anyway, just to make the point that striking off,  ESC C16 and HMRC's/TSOL's inability to police it all has been great for shareholders but not the government and therefore perhaps the rest of society?

There has been significant abuse whereby companies accumulate large balance sheets and then strike them off before there are any questions about investment activity or, more usually, before there are any questions about anything, ie without filing any accounts or tax returns.

If I was in charge, I'd chuck it all up in the air and start again maybe adding a more onerous declaration to Companies House & HMRC about the strike off and conduct of the company which would have to go to Companies House via HMRC.

Instead it would seem that they will take a weaker short cut by insisting you'll only get your ER & 10% tax if you follow a formal liquidation, thus still enabling the majority to still strike off and walk away with whatever is left, tax free.

 

 

 

Nick Graves's picture

Not a bad idea, Paul

Nick Graves | | Permalink

Certainly where companies of significant assets are disappeared; something like a Notice to Creditors could go on the record.

A lot of companies are formed with good intent, but never actually trade or fold quickly, because what seemed like a good idea at the time never panned out, or had to be abandoned.

I think it's important that they can be struck off with a minimum of fuss. Having said that, they will normally only have a nominal share capital & a few/load of expenses anyway.

You are quite right; I think The Who made me rightly cynical from a young age!

 

 

 

 

 

client cases

topcomcons | | Permalink

We have 2 cases with the Treasury solicitor and this was a failed venture and the accountants who were the regd office never forwarded notices to the poor director whose family lent £7,000 to the company to pay for rent of a shop which did not pass reference test and 3 years later we have had to restore the company and pay fees exceeding £2,000 when a more sympathetic attitude could have avoided all this work!! There surely should be discretions in these type of cases to refund the funds that were returned to the company's bank account unbeknown to the sole young director!!

oh dear, looks like I may have done my last ESC16

crosscast | | Permalink

[quote=Paul Scholes]

Nick - you show your age with that ref to Uncle Earnie!

Anyway, just to make the point that striking off,  ESC C16 and HMRC's/TSOL's inability to police it all has been great for shareholders but not the government and therefore perhaps the rest of society?

There has been significant abuse whereby companies accumulate large balance sheets and then strike them off before there are any questions about investment activity or, more usually, before there are any questions about anything, ie without filing any accounts or tax returns.

If I was in charge, I'd chuck it all up in the air and start again maybe adding a more onerous declaration to Companies House & HMRC about the strike off and conduct of the company which would have to go to Companies House via HMRC.

Instead it would seem that they will take a weaker short cut by insisting you'll only get your ER & 10% tax if you follow a formal liquidation, thus still enabling the majority to still strike off and walk away with whatever is left, tax free.

 

 

 I love ESC16 and if it goes, or a low limit is placed to leave all save 4000 as income, it time to make friends with liquidators, More fees to the insolvency boys.

adoggett's picture

ESC 16

adoggett | | Permalink

It works, everybody understands it - So leave it alone. The world is not fair - I understand the taxpayers pay Union bosses high salaries - How can this be fair. We need an exit route for small companies.. which is cheap and efficient.. we have one, so why change. Do we really need to pay insolvency practitioners £5k to inform one or two creditors (if any) that the company is closing down? We need to reduce bureaucracy to get the country going again.. leave rules and laws as they are - the country would save £5 billion a year on retraining.. I belive we now need an independent Chancellor of the Exchequer.. the one we had for 10 years recently has severely damaged the country.

Paul Scholes's picture

adoggett - slightly off-piste ?

Paul Scholes | | Permalink

Chancellor of the Exchequer? - Nothing like changing the answer to the question you really wanted asked eh?

I do however agree that the World is unfair, or rather inequitable.  Unless you are Dr Who it, and the people in it, are not "conserved" they change and develop and so if you "leave rules and laws as they are" things will fall apart and, for example, you'd be able to deny employment to anyone who looks different to you or, before the Strike Off legislation, have to employ an insolvency practitioner.

I also agree that genuine small businesses need an easy exit route but, as I said, there are thousands who are not genuine and are taking the piste using the current flawed & unfit-for- 2011 rules & regs.

I suppose the one saving grace of capitalism is that once the traps are opened on the planned new regs the market will be swamped by IP firms looking to do deals on cut-price liquidations.