Dissolving a Company – Dissolution

Is there a way to close my company simply and cost effectively?

Yes, you can close your company. The process is called dissolving a limited company or dissolution.

A voluntary dissolution can remove companies from the Companies House Register if you meet certain conditions. Most specifically, you cannot dissolve a company if it has significant debts. You cannot dissolve your company unless ALL of the requirements are met (see detailed guide below).

Company dissolution is a handy and cost-effective tool.

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Dissolve a company – A detailed guide

If you would prefer frequently asked questions guide to help you understand the more extended guide click here “Dissolution frequently asked questions“.

This process is also known as a voluntary dissolution. It is a provision in the Companies Act to allow the removal of the company from the Companies Register, typically when the company is dormant.

If the company serves no useful purpose, its dissolution removes the need for the filing of annual returns and accounts. However, bear in mind that dissolving the company (removed from the Companies House Register) can only happen if the following conditions apply:

• The company has not traded for three months; this must be a genuine cessation of trade!
• The company has no assets, property or cash at the bank.
• The creditors are informed, requesting their permission for the company dissolution.
• Creditors are given three months to consider the request to dissolve the company and can reject such a request.
• The company has not changed its name in this period.
• The company has not disposed of any property or assets (this may include land and buildings, plant and equipment, debtors and other assets).

Please note that paying off debts does not necessarily constitute trading, but for detailed advice on this and all other aspects of dissolution, please call on 0800 9700539 for further information.

When you cannot dissolve your company

1. A formal insolvency procedure has started. These procedures include a CVL, CVA, administration, receivership or compulsory liquidation under the Insolvencies Act 1986, or scheme of arrangement under the Companies Act 1985.
2. A winding up petition has been issued against a company

Directors Health Warning!

The Insolvency Service has been given powers to investigate directors of companies that have been dissolved as set out in the Ratings (Coronavirus) and Directors Disqualification (Dissolved Companies) Act. This has closed a legal loophole and acts as a strong deterrent against the misuse of the dissolution process.

Extension of the power to investigate also includes the relevant sanctions such as disqualification from acting as a company director for up to 15 years. These powers will be exercised by the Insolvency Service on behalf of the Business Secretary.

The Ratings (Coronavirus) and Directors Disqualification (Dissolved Companies) Act is retrospective and will enable the Insolvency Service to also tackle Directors who have inappropriately wound-up companies that have benefited from Bounce Back Loans.

So, if you have a Bounce Back Loan do not try and dissolve the company!  All the banks receive a notice from Companies House if you try and they will object.  So you either have to liquidate the company voluntarily or wait for the bank to apply through the court (risky, stressful and will take a long time)

Advantages of dissolution:

• It is quick and clean removal of a dormant company from the Companies House Register.
• It avoids the costs of liquidation, fees and expenses (if small debts!)
• It avoids formal investigation into the conduct of the directors as required in liquidation or receivership.

Disadvantages of dissolution:

• Creditors may reject the application; their permission is required to proceed with dissolution.
• Any shareholder, creditor or liquidator can apply to revive the company for up to 20 years after dissolution.
• They may revive the company if the following applies:
  • The creditors did not receive the correct notice.
  • It comes to light that the company was trading during the three months prior to making an application to dissolve.
  • It comes to light that the company or the directors committed some fraud, misfeasance or other unjust action before or during the dissolution process.
• While a commonsense approach to collecting assets and distributing them to creditors in proper order usually suffices, there is no prescribed method. The process may be open to abuse and if performed incorrectly, can lead to a revival of the company. If you have any doubt as to the application of this methodology, please do not hesitate to contact us by email or on our freephone number 0800 9700539.
• Dissolution cannot terminate leases, HP agreements or contingent liabilities. Receivership, administration, CVL, or CVA need to be used whenever such circumstances exist. Directors should take proper advice from a turnaround practitioner or insolvency practitioner who is well-versed in the rules in this regard.
• 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 or basic fraud have been committed dissolution does not afford an investigation into past conduct. If the creditors believe that such transactions may have occurred, they can, of course, refuse permission and the company will either be liquidated voluntarily or compulsorily.

Alternatives to Dissolving a Company

Leaving a company dormant

Leaving the company dormant may be an option if you think that you may need the company in the future. However, you will need to keep in touch with Companies House and file a set of dormant accounts and a statement of conformity each year. So a bit of paperwork still!

A members voluntary liquidation

A members voluntary liquidation (MVL) is a formal process where any assets such as stock, cash, property, and any other assets are “liquidated”. The proceeds are then distributed to the members. Also, all debts of the company have to be paid off, and a statement of solvency declared. A Licensed Insolvency Practitioner can only do MVL. so there are fees to pay, but the process is managed correctly, and there are tax advantages as well.

“Does my company qualify for voluntary dissolution, I am not sure”?

Call us now on 0800 9700539 and get some expert advice, we’ll help you decide if you can dissolve your with our step-by-step programme.