Begbies Traynor Group

Strike off

Voluntary Company Liquidation - Understanding Company Dissolution and Strike Off

There are many reasons why you might want to dissolve your limited company. Perhaps you experienced early success, but the market has now shifted, or maybe your business is still successful but you are approaching retirement and there is no one available to take over from you. Whatever your reasons for closing your company, you should explore the range of options open to you, as reversing this decision can be costly.

What does dissolving a company mean?

To dissolve a company, also known as ‘striking off’, essentially means removing the name of the business from the official register at Companies House. After dissolution, the company ceases to legally exist. The dissolving of a company is often a voluntary process; however Companies House can dissolve companies that have not kept up with their accounting responsibilities such as filing accounts and tax returns.

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Is my company eligible for dissolution?

In order to proceed with voluntary dissolution, all loose ends, including the payment of outstanding taxes and creditors, must be tied up. Due to this, dissolution is only an option for solvent companies and should not be seen as a way to evade creditors. There are certain conditions that must be met before a company is eligible for dissolution. Your company must:

  • Not have traded or sold off any stock in the last 3 months
  • Not have changed names in the last 3 months
  • Not be threatened with liquidation or any other type of insolvency proceedings, or have agreements with creditors such as a Company Voluntary Arrangement (CVA)

What is the process for dissolving a company?

Once you are sure your company meets these objectives, the process of dissolution is done through a DS01 form which is then posted to Companies House, or alternatively the application can be made online. A fee of £8 is also payable.

The form must be signed by the majority of the director’s (or all of them if there are only one or two). You must also send copies of the form to all ‘notifiable parties’ which includes creditors, employees, shareholders, and other directors of the company within 7 days of making the application. A notice will then be placed in the Gazette announcing your decision to dissolve the company. Your company will officially be dissolved 3 months after this notice, providing no objections have been made. The Gazette will then run a final notice confirming the dissolution of your company.

What are my responsibilities when closing down my company?

Before applying to strike off your company, you have to adhere to certain obligations to ensure the company is closed down legally. Your responsibilities are numerous and include:

  • Ensuring business assets are distributed among shareholders prior to applying for dissolution. This is particularly important as any assets remaining with the company upon dissolution become Bona Vacantia and automatically become the property of the Crown
  • Informing all interested parties and HM Revenue and Customs (HMRC) of your decision to dissolve the company within 7 days of lodging your application with Companies House
    Paying employees their final wages and following certain rules if you are making staff redundant
  • Paying any outstanding Corporation Tax, PAYE, NI and settling any other tax liabilities
  • Filing the final accounts and company tax return with HMRC. You must state that these are the final accounts due to the imminent dissolution of the company
  • Asking HMRC to close down the company’s payroll scheme and deregister for VAT
  • Confirm that the company can, or has, paid any outstanding debts
  • Closing the company bank accounts

Following the dissolution of your company, you are required to keep any records and documents relating to the business for 7 years.

Can anything stop my company being dissolved?

Anyone can object to the proposed dissolution of your company. A common objector is creditors who are owed money. If an objection is upheld by the Registrar then the proposed dissolution will be suspended. You should be aware that a creditor can apply for a court order to restore your company to the register even after dissolution, if you have evaded paying them. This is why it is crucial that you to inform all interested parties of your intention to dissolve the company and ensure that all creditors are fully paid.

After submitting your application, you may find yourself needing to halt the proceedings. This may be because your company changes its name, continues to trade, or is made insolvent. If this happens, you must complete form DS02.

What if my company has debts? Is dissolving a company the same as liquidation?

Dissolution is only applicable if your company is free from debt. If your company is insolvent, dissolving it is not an option; instead you will have to consider another type of insolvency proceeding such as ‘Creditors Voluntary Liquidation’ (CVL). Liquidation differs from dissolution, and involves extracting the assets from a company and using these to pay off any outstanding debts.

What are the alternatives to dissolving my company?

While dissolving your company may be the best course of action in relatively straightforward cases, a Members’ Voluntary Liquidation (MVL) may be the preferred option if you situation is more complex. Just like dissolving a company, MVL is only an option where the company is capable of paying its debts, including outstanding tax, within 12 months; a declaration of solvency must be signed testifying to this extent. The MVL must be agreed to by a minimum of 75% of the company’s director’s. MVL differs from dissolution as a liquidator is appointed to contact all creditors and ask for proof of debt. When this has been satisfied, any remaining money will be distributed amongst the shareholders. While MVL comes with more costs than a straightforward dissolution due to the involvement of a liquidator, it may make better financial sense from a tax perspective to go down this route if there is a sizable value of shareholder funds involved.

  • Register the company as dormant

A company can be restored to the register up to 6 years after it has been dissolved, however this can be a costly process. .  If you envisage that you may want to reinstate your company in the future, registering it as dormant may be a better option.  This not only keeps the company on the ‘back-burner’ in case it is needed again, it also keeps the business name registered to you, meaning no one else use it.

A note of caution – while dissolving your company may seem like a relatively straightforward process, it must be approached with caution. If you provide false information in your application, intentional or not, or if you fail to notify an interested party, the consequences can be severe. You can face disqualification as a director, be handed a considerable fine, or in extreme cases you could even face imprisonment. If you are in any doubt as to whether you qualify for dissolution, how to go about completing the form, or even whether it is the best option for you, you should contact a professional who can talk you through the whole process and discuss the best option for you and your business. At Begbies Traynor, we have a team of qualified insolvency practitioners based across the UK who can guide you through potential options for your company.

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