Reviewed: 16th August 2018
Company dissolution is when a company is struck off Companies House which is the public register on which official company information is displayed.
The harsh reality is that very few businesses last forever and there may come a time when you need to consider dissolving your limited company. There are a whole host of reasons why you may be looking into this option; your business may have been successful but has now served its purpose, or maybe it never got off the ground at all and has been sitting dormant ever since.
If you are considering dissolving your company, you are not alone. In fact 490,738 companies were dissolved in the 12 months up to the end of March 2018. Here we present answers to the most frequently asked questions regarding company dissolution:
To dissolve a company, which is also known as ‘dissolution’ or ‘striking off’, is a way of closing down a limited company by removing its name from the official register held at Companies House. Once the name is removed from the register, the company no longer legally exists.
No, liquidation and dissolution are two different processes. Dissolution is a way to achieve company closure in situations where no debt is present, or where any outstanding debt and other liabilities can be settled in full within 12 months.
Liquidation is different. If your company is unable to pay off what it owes, liquidation is likely to be the most appropriate option for you. Liquidation involves extracting the assets from a company, selling these to realise as much money as possible, and putting these towards paying off any outstanding debts. Liquidation can only be entered into with a licensed insolvency practitioner who will oversee the whole process on your behalf.
As well as your company being solvent, there are other conditions that must be met before a company is eligible for dissolution. Your company must:
The process of dissolving your company is done through submitting a DS01 form which must be signed by a majority of the directors (or all if there is only one or two). The form must be sent to Companies House for processing and a copy must also be sent to all ‘notifiable parties’ which includes creditors, employees and shareholders. 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 is published, providing no objections have been made. The Gazette will then run a final notice confirming the dissolution of your company.
Before applying to dissolve your company, you have a number of responsibilities. They include:
Following the dissolution of your company, you are required to keep any records and documents relating to the business for 7 years.
Anyone can object to the proposed dissolution of your company. If your company owes money, then you should expect your creditors to submit an objection to your application. If an objection is upheld by the Registrar then the dissolution will not be allowed to go ahead. 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 inform all interested parties of your intention to dissolve the company and ensure all creditors are fully paid.
There may also be a reason why you, as director of the company, have to halt the proceedings. You must retract your application if your company changes its name, continues to trade, or is made insolvent. If this happens, you must complete form DS02.
While dissolving your company may seem like a straightforward process, caution must be exercised. If you provide false information in your application, deliberately or otherwise, or fail to notify an interested party of your decision to dissolve, the consequences can be severe. You can face disqualification as a director, be handed a considerable fine, or even face imprisonment in extreme cases.
Should a creditor believe your company has not been closed down through the correct channels, or has another legitimate reason for arguing against the closure, they can appeal for your company to be restored to the register at Companies House. This would then allow them, and any other outstanding creditors, to continue to chase your company for the unpaid debts. Alternatively, closing down your company through a formal liquidation process is a more final act. The insolvency practitioner overseeing the liquidation will ensure the maximum amount of money is realised from company assets and that this is distributed fairly among all creditors. If a company’s wind down is administered by a licensed insolvency practitioner, disgruntled creditors are extremely unlikely to be able to successfully petition for the company’s restoration.
If you are in any doubt as to whether you qualify for dissolution, how to go about completing the necessary paperwork, 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.
Another less well known drawback of dissolving, rather than liquidating your company, is the removal of your right to claim director redundancy. Director redundancy works in largely the same way as staff redundancy and can be a hugely valuable lifeline at this stressful time.
The reason many directors opt for strike off rather than liquidation is because it is undoubtedly a much cheaper option at £10 compared to the £5,000 average cost of liquidation. However, what is often overlooked is that going down the liquidation route could unlock potential director redundancy – the value of which could dwarf the liquidation fees. In fact, while the average liquidation fee is around £5,000, the average director redundancy claim is £9,000. Not only could this money pay for the liquidation, but it could also give you an additional financial boost moving forwards.
As long as you are paid a regular salary through the PAYE system, work a minimum of 16 hours per week for your company, and your company has been incorporated for at least two years, it is likely you will be able to claim. You can ascertain whether you have a valid claim and the level this claim is likely to be by using the Redundancy Claims UK calculator. It is advisable to do this before making a final decision on how to proceed with the closure of your company.
Dissolving your company may be the best course of action in relatively straightforward situations; however there are other options you may want to consider if your situation is a little more complex.
Just like dissolving a company, a Members’ Voluntary Liquidation (MVL), is only an option for companies capable of settling its debts within 12 months. The MVL must be agreed to by a minimum of 75% of the company’s directors. An MVL differs from dissolution as a liquidator is appointed to assist in the process. The liquidator will contact all creditors and ask for proof of debt. When all outstanding debt has been satisfied, all remaining funds will be distributed amongst the shareholders. The appointment of a liquidator means more costs are incurred with an MVL when compared to dissolution. However, if a high value of shareholder funds is involved, it may make better financial sense from a tax perspective to go down this route.
While it is possible for a dissolved company to be restored to the register for up to 6 years after closure, this comes with significant financial costs. If you believe you may have use for the company in the future, registering it as dormant may be a better option. Doing this keeps the company on the ‘back-burner’ in case you want to revive it at any point.
If you are considering closing down your company and are unsure as to the best way of doing this, Real Business Rescue can help. Our team of licensed insolvency practitioners can talk you through all the available options, including dissolution and liquidation, and suggest the most appropriate course of action for you and your business. Call our expert advisers today on 0800 644 6080 to arrange a free no-obligation consultation. We have an extensive network of 75 offices offering confidential director support across the UK.