Should I restore a dissolved company?

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I was recently approached for advice regarding a Company which had been struck off and dissolved by the Registrar of Companies House.  It would appear that the company was struck off for what seems to be non-filing of their annual confirmation statement.  The first the directors supposedly knew of this was when they received a letter from their bank advising them that the Company bank account had been frozen and the funds therein now effectively belonged to the ‘Crown’. 

According to the directors:

  • No accounts or tax return have ever been submitted due to the fact that this is the first full year of trading.
  • The Company has around £20,000 in the bank.  This account has now been frozen.
  • There is no overdrawn directors loan account.
  • No dividends have been declared.
  • The Company has a PAYE scheme.
  • The Company is VAT registered.

Initially I thought it would just be a case of obtaining a waiver letter from Bona Vacantia and applying for an administrative restoration, however, it subsequently transpires that the Company owes VAT of around £150,000.  I suspect if the Company was restored then it is unlikely that this debt could be repaid and the Company would effectively be insolvent and thus look to appoint liquidators to wind-up the company.  Consequently the only benefit I can see of carrying out this process would be that if the Company was restored and then liquidated, it is unlikely (I assume) that there would be any future issue with HMR&C.  As far as I can ascertain the VAT not paid over has effectively been used to finance the running costs of the business during the past 12 months (i.e. keep the business afloat during the coronavirus pandemic).

I suppose the real question is, as the Company has now been dissolved would the Revenue seek to restore the Company to attempt to recover the VAT liability, especially as there are no assets to pay such an amount?  If not would the pragmatic advice be to accept the loss of the £20k bank balance and ‘walk away’ as the Company no longer exists?

On a related matter, what happens in regards to the PAYE and VAT accounts/registrations with HMR&C. If the dissolved business keeps getting demands for payment of VAT do they just need to keep writing to the Revenue to advise them that the Company has been dissolved?

Any thoughts or advice on the above matter would be greatly appreciated.

Replies (10)

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RLI
By lionofludesch
04th Feb 2021 10:31

I'm not sure that you should even be acting for the clients.

What is their story about the VAT liability ? Is it correct or merely assessed ? Do they intend to settle it ? How ? You say there are no overdrawn directors' loans but where's the money gone ? Do the participators have it ? What about Corporation Tax and the s455 liability ? How will they pay that ?

So many questions .......

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Replying to lionofludesch:
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By Paul Crowley
04th Feb 2021 11:07

Agree
If directors were running a company and failing to pay THAT MUCH VAT, How can you believe anything they say?

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Flag of the Soviet Union
By thevaliant
04th Feb 2021 10:32

As Lion says, far too many questions than answers.

It looks like the owners/directors have been running the company in the usual, "I'm the company, the company is me." sort of way, along with an additional not unseen attitude of "I don't have to pay tax."

I'd walk away.

You say that the business was kept going by not paying the VAT. Did they attempt to seek any other Covid related help? CBILS? Furlough? Rate grant?

If you restored the company, you'd have to try and get all this fixed. Take out loans to pay the VAT etc, but given the attitude of the directors I'd be wary of trying to get them on the straight and narrow.

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By Truthsayer
04th Feb 2021 10:40

Are you an insolvency specialist? If not, you should walk away from this. I fact, you might well want to consider walking away from it even if you are an insolvency specialist, unless you get payment upfront from the directors.

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Lisa Thomas
By Lisa Thomas - Insolvency Practitioner
04th Feb 2021 11:47

I think you have answered your own question in that there is no point in the Directors paying to restore this Company as it is insolvent.

HMRC may decide to restore it and Liquidate in order for the Liquidators to investigation the Directors and pursue them personally for any DLAs owed to the Company and/or misconduct that has occurred.

Or HMRC might well just pursue the Directors for fraud without the need for restoration (which is less likely unless they have strong evidence of fraudulent behaviour).

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Replying to Insolvency Practitioner:
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By Falco
04th Feb 2021 14:03

This is what I was thinking but I have no idea regarding the likelihood of HMRC actually applying to have this Company restored.

Rather than deliberately carrying out fraudulent behaviour it seems more likely that this issue has arisen due to a combination of incompetence, lack of business knowledge/nous, poor advice and the directors burying their heads in the sand and hoping that everything could be ‘fixed’ once the coronavirus epidemic was under control and business got back to normal.

Assuming the directors are correct in their assertion that no funds have been withdrawn from the business’ (i.e. no directors loan accounts), then if a liquidation process was entered into, there would be no further amounts to recover from either the directors or any associated participators. As a result the only issue would become one of whether any misconduct took place (could the directors be pursued for the debt if this was proven?).

The consensus above is that I should ‘walk away’ from this and to be honest that is my most likely course of action. It just seems to me though that it is all a bit too easy for the Company (and directors) to escape from such a large debt. Effectively as the Company is dissolved, the debt ceased to exist with the Company and there is no onus or requirement for the directors to pay-off the debts of the Company. An issue/problem will only arise if HMR&C elect to have the Company restored and even then, if the directors (or any other parties) do not owe the Company money and fraudulent behaviour isn’t suspected, no payment will ever be made in respect of the Company’s liabilities.

Based on my understanding, I believe that the above is correct, however, it doesn’t seem like that should be the case, therefore, if anybody knows differently…….?

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Replying to Falco:
RLI
By lionofludesch
04th Feb 2021 14:22

Well, aye, but the mystery to me is how the company managed to run up a £150,000 VAT debt, implying a minimum of £900,000 gross sales, whilst not taking out any money and leaving only £20,000 in the bank account.

Imho, folk should only be allowed to be directors after completing a course on their duties. It need only be a half day seminar but, as things stand, far too many folk are completely oblivious to their obligations as directors.

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Replying to Falco:
Lisa Thomas
By Lisa Thomas - Insolvency Practitioner
04th Feb 2021 15:07

[quote=Falco]

hn accounts), (could the directors be pursued for the debt if this was proven?).

Yes.

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By bernard michael
05th Feb 2021 09:17

Have you searched at Companies House to see whether the directors
are directors/shareholders in other companies and have they recently they set up one.

I don't buy the incompetence answer. For a VAT bill of this magnitude they would have been harassed by HMRC. It comes back to the questions
What have they spent the VAT money on
Are they up to date with PAYE ??
Have the directors actually paid themselves through the payroll rather than crediting loan a/cs ??
ETC....................

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Melchett
By thestudyman
05th Feb 2021 09:23

Did the directors tell you about the VAT liability or did they "overlook" the fact? This may give some input to their intentions. You surely cannot forget a liability that big.

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