Company Dissolution
If certain conditions are met a company can be dissolved. There is no formal insolvency process | no investigation and no submission of a report on the directors conduct.
The procedure is, however, only available in certain circumstances.
The process is based on making use of Sections 1003 to 1008 of the Companies Act 2006 (formerly Section 652 of The Companies Act 1985). If the company serves no useful purpose, its dissolution removes the need for filing annual returns and accounts.
It is normally used for dormant companies but can be used for companies which meet the criteria namely
- The company has not traded for three months.
- The company has no assets.
- The creditors must be circulated requesting their permission for the company to be dissolved.
- Creditors are given three months to consider the request and can reject such request.
- The company cannot have changed its name in this period.
- The company may not have disposed of any property or assets (this may include land and buildings, plant and equipment, debtors and other assets).
The paying off debts does not necessarily constitute trading.
Dissolution cannot be used if any formal insolvency procedure has commenced or proceedings have been commenced.
Advantages and Disadvantages
- It is a quick and clean removal of a dormant company from the Companies House Register.
- Dissolution avoids the costs of liquidation, fees and expenses.
- It avoids formal investigation into the conduct of the directors as required in liquidation or receivership.
- Creditors may reject the application.
- Any shareholder, creditor or liquidator can apply to revive the company for up to 20 years after dissolution if any of the following applies
- Notice required to creditors was not given correctly or adequately
- The company was trading during the three months period prior to making application to dissolve.
- Misfeasance or other unjust action was committed by the company or the directors before or during the dissolution process.
- Whilst a commonsense approach to collecting assets and distributing them to creditors in proper order usually suffices, there is no prescribed method. This could of course be open to abuse and if performed incorrectly can lead to a revival of the company as above.
- Dissolution cannot terminate leases, HP agreements or contingent liabilities. An insolvency procedure needs to be used whenever such circumstances exist.
- From a creditors’ perspective dissolution avoids a formal investigation into the director’s conduct. Of course if any transactions such as a preference, transactions defrauding creditors dissolution does not afford an investigation into past conduct. If the creditors are of the opinion that such transactions may have occurred they can of course refuse permission and the company will then either be liquidated voluntarily or compulsorily.
This is a technical area and directors should take full and proper advice. We can assist you and prepare and circulate to the Registrar of Companies and all creditors, shareholders, employees and trustees of any pension fund
- a statement of affairs,
- a schedule of secured, unsecured and preferential creditors
- a list of employees and their claims
- statutory information
- a charges register
- a company history to explain the background to the company’s financial difficulties
The registered office of your company is also changed at Companies House. Normally after three to eight months of sending out the creditors pack the company is struck from the register at Companies House and then ceases to exist.
We ensure you fulfil your statutory duty of informing your creditors of the financial position and you properly report the matter to the Registrar of Companies. You can then not later be personally fined by the Registrar for any later failure to deliver accounts and annual returns. As the process is not a formal liquidation no “conduct report” on the directors is sent to the Directors Disqualification Unit and no investigation is undertaken into the company affairs.
The Venture Consulting Team