Companies may reach the end of their trading life for a number of reasons. At that point the members/Directors have various options; namely to:
The decision is usually determined following expert advice from a tax advisor; MVLs are typically the most tax-efficient process from which to receive a distribution of the assets, providing certain thresholds and qualifying criteria are met. Your accountant/tax advisor will make this assessment with you.
If you wish to retain the company as a dormant company, you must file accounts with Companies House and file tax returns, unless HMRC is informed of the dormant status. However, the company may not be able to protect the use of the trading name or branding previously used. If accounts are not properly filed at Companies House the Registrar of Companies may take steps to strike it off the register. Any assets left in the company will vest in the Crown or Duchy and you will need to make an appropriate application to recover assets (see Dissolution, Restoration and Vesting).
Before taking steps to dissolve the company, the Directors should consider whether the company is solvent (and able to pay off all its liabilities within 12 months) or insolvent. Directors should also consider the company’s assets and liabilities that need to be dealt with. If the Directors are concerned the company is insolvent, or faces claims (whether disputed or not) that render it potentially insolvent, we recommend you contact us to consider alternative options.
In the case of a dormant company with no creditors, whose assets have been distributed, the Directors may be entitled to apply to Companies House to dissolve the company. The Companies Act outlines the criteria which must be met, including the classes of persons to be notified of the application.
If the process is followed correctly, Companies House will advertise the application in the London Gazette and, where no objection is received, the company will be dissolved two months after the date of the advert.
If the company’s affairs must be wound down prior to dissolution, or a distribution through an MVL would be more appropriate, a licensed Insolvency Practitioner can assist. The process is relatively prescriptive. If company assets need to be distributed to shareholders during the process, as part of winding up, the articles will need to be checked and, if necessary, amended to allow that.
The Directors are required to sign a declaration of solvency, confirming that the company will be able to settle all its liabilities (including statutory interest) within 12 months of the winding up commencing. Having considered that declaration and having secured the consent of an Insolvency Practitioner to act, the shareholders can resolve to place the company into MVL. However, there is a risk that if the declaration is not properly declared the liquidation could advance as an insolvent liquidation. It is vital, therefore, that the process is followed correctly.
During the process, the Insolvency Practitioner will: advertise for creditors’ claims in the London Gazette; agree creditors’ claims; realise the value in the assets of the company; pay the creditors that have submitted claims to the liquidator; and distribute any surplus to the shareholders (after settling the costs of the liquidation).
Once the assets are distributed, the liquidator calls a meeting of the shareholders (giving one month’s notice, and advertising in the London Gazette), when the final accounts will be presented. The liquidator will subsequently send that account to Companies House, and will be released from office. The company will be dissolved automatically on a date three months after filing the return.
If you are considering closing down your company and wish to discuss your available options, or you wish to implement an option recommended by your accountant/professional advisors, please contact a member of the Restructuring and Insolvency Team.