Dissolving a company is term given to the process of removing the company and its information from the Companies House Registrar of Companies. There are a number of reasons Directors may wish to dissolve a company, but not every example will qualify for the appropriate use of dissolution.
A Solvent company with assets must initiate a MVL rather than dissolving the company, to ensure that all assets are realised and declared for tax purposes.
In order to qualify for Dissolution a company must:
First and foremost, you must realise any assets and write off any debts before attempting to proceed with the Dissolution process. If you fail to do so, any assets remaining within the company at the time of Dissolution will automatically transfer to the state.
In order to Dissolve your company, it is the Directors duty to:
In order to officially proceed with Dissolution, you must obtain form DS01 from Companies House and complete this before returning it to them for processing. This paperwork can be downloaded online but must be signed and completed by all (a majority) Directors. Once this form is completed and has been sent for processing, all people within the company must be informed. A copy of this document must be shared with anyone involved in the operation of the company (employees, Directors) any creditors, shareholders, and trustees.
If you are dissolving a company that has never traded, the same form (DS01) is applicable and the same fees will apply. In this circumstance, Directors may also wish to send a letter to HMRC detailing that the company never traded and is such now being dissolved. This is likely to avoid any confusion during the process, as they will have automatically assigned your company a Corporation Tax Number upon creation and they may investigate this if not informed.
As a Director, you will be notified once your application for Dissolution has been approved. Companies House will issue a formal letter accepting your request and informing you that this request will be published in the London Gazette. This is a publication that acts as a public record for official notices relating to the Registrar of Companies, as well as other official notices.
Once complete, this will be noted in the London Gazette for a second time and the company will no longer exist as a legal entity.
Another way for a business to seek Dissolution is an application to be ‘Struck Off’ the Companies House Register. Only certain people are permitted to apply for this (Directors, Secretaries (on behalf) or company advisors) and it is only applicable to certain situations.
The circumstances which make companies eligible for this process are:
Time Efficient
Once a company has been registered dormant for several months this process can be one of the most efficient ways to officially close the company, adhering to legal processes and requirements.
Cost Efficient
The cost for application is minimal. Even in instances where companies my need legal/professional services in order to submit this application. Striking Off is considered one of the most cost-effective solutions to close a company, but a company must be eligible for this process, which is not always the case.
Less Personal Liability
Unlike Liquidation, the Directors and their actions are not scrutinised during a Striking Off. This means that there is no risk of these members being held liable for company debts.
No HMRC responsibilities
During the dormant period, all accounts and tax returns still need to be processed and filed with HMRC, to ensure this dormant status is noted. Once a company is Stuck Off, there are no longer any requirements to HMRC.
Creditor Setbacks
If there are outstanding arrears, Creditors must be made aware of any proposed applications to be Struck Off. This gives the creditors the opportunity to object to this process. Once they have objected this process can no longer be considered and alternative methods of closing the company must be explored.
Debt Obligations
Striking Off does not automatically dissolve or wipe out any remaining company debts. If a company is Dissolved or Struck Off while in arrears, these creditors can contend this decision and apply for company restoration at any time within a period of 20 years from dissolution. If restored, they can take legal action against the company in order to have these debts settled and ensure repayment.
If there are debts outstanding, there is no guarantee that assets will be distributed in the correct manner (unlike with Liquidation). This could put the company at risk of unsettled debts which will also enable any creditors to pursue restoration in order to take legal action.
Contractual Obligations
If there are active leases or agreements such as hire purchases agreements present a company cannot be dissolved as this process does not terminate these obligations. If a company wishes to close before the termination of such agreements, it must pursue other options.
Like with most company closure procedures, there is not a set limit in which it must be done.
However, the minimum time taken to officially dissolve a company is no less than 3 months. If a company is in a more complex and complicated position, additional tasks and processes may have to be initiated. If this is the case, naturally the overall process will take longer.
It is important to note that the ‘clock’ starts once the Directors have received confirmation and acceptance prior to the official notice in the London Gazette. Simply submitting the form, itself will not start the process if there are roadblocks and complications that affect this application.
If you are unable to pay company debts and your company is insolvent, you may be able to pursue a CVL (Creditors’ Voluntary Liquidation) as an alternative. If the situation is not rectified, the company may be ordered to enter Compulsory Liquidation which is incredibly difficult to reverse.
Dissolution is not a solution to address company debt it is only an option to companies which have settled all outstanding arrears. If you are suffering with mounting debt, get in touch with a Business Recovery expert who can detail the options available to you, based on your unique circumstances.
If the company is solvent and able to settle outstanding debt then Dissolution is still an option. In the first instance, all loans, debts and arrears must be repaid. The company should then follower the company closure process which includes, ceasing of all trading, liquidating/realising all assets, and all final account be filed. The company must then remain dormant for a period of at least 3 months before it can apply to be struck off.
A company can indeed be restored once it has been dissolved but this process requires a Court Restoration Order to proceed. The following individuals can initiate a company restoration to be approved by the court:
Considering dissolving your company? Get in touch with us for the best advice to do so, safely and effectively. Our Business Recovery Experts and Insolvency Practitioners can offer you practical advice and guidance, catered to your unique situation.