August 16, 2023 Company Dissolutions
All good things must come to an end, or so says the proverb, and that is as true of companies as it is of many other aspects of life. Whilst Ashford Cattle Market Company Limited was incorporated on 25 September 1856 and is still going strong, many companies’ lives are short-lived.
Whether it be due to a merger or acquisition, the end of its natural trading lifespan, or for any other reason; there may well come a time when the natural next step is for a company to be dissolved. This can be done via a Strike off or a Liquidation.
It may seem like an isolating experience but directors who make the decision to dissolve their company won’t be alone. According to the latest information from Companies House, in the three months from April to June 2023, there were just over 178,000 company dissolutions; a rise of 14.2% on the same period in 2022.
The process to be followed when closing down a limited company and arranging for it to be struck off the register at Companies House will depend on the company’s circumstances. Directors are able to go down the strike-off route if their company has not traded, sold off any stock, or changed names in the previous three months; is not threatened with liquidation; and has no agreements with creditors. However, the company may be resurrected in the future should an interested party make an application to the courts.
In other circumstances, the directors will need to follow a liquidation pathway which itself will vary depending on the circumstances. For example, if a company is insolvent or if owner/managers want to step down from a family business with no one wanting to take over the reins, a member’s voluntary liquidation route may be the way to go. Creditors can also force a company into involuntary liquidation.
Whatever the route chosen it is vital that all circumstances are taken into account and that the correct processes are followed to avoid unintended consequences. For example, failing to advise all interested parties could result in a fine or possible prosecution. Similarly, undertaking the required actions in the wrong order could leave directors unable to access bank balances or dispose of assets.
Timing is also of the essence as in certain circumstances a lack of planning at the outset could lead to unanticipated tax bills. For example, a capital distribution upon dissolution may lead to a capital gains liability unless business asset disposal relief can come into play. And that might require a couple of year’s advanced planning. Despite our warnings clients occasionally leave money in company bank accounts and are surprised that this defaults to the Crown upon dissolution.
What this leads to is an appreciation of the importance of taking professional advice before acting to wind up a business. Elemental can provide advice on the options available to directors and, if required, manage the striking-off process from start to finish.
