What is Company Dissolution?
Posted on 22nd September 2021 at 15:01
When we talk about 'company dissolution,' there can sometimes be confusion in the way this relates to insolvency and liquidation, simply because liquidation does generally result in a company being dissolved. The technical term of company dissolution actually refers to a process available to solvent companies, however, and is specifically not an option for those that face the threat of liquidation or are unable to clear financial debts.
Company dissolution, as a technical term, refers to the closing down of a company so that it ceases to legally exist - it them being 'struck' or removed from the Companies House register. Though the result is the same, the purpose of company dissolution is what sets it apart from liquidation. The purpose of liquidation is the clearance of debt, while company dissolution can be instigated for any number of reasons, including retirement after business success. Crucially, since company dissolution applies to solvent companies, it is possible for creditors to have the company restored to the Companies House register up to 20 years after it's removal, to facilitate the reclamation of previously undeclared , outstanding debt.
Criteria and Process
While company dissolution is an option for solvent companies, there are still strict criteria that must be met in order to qualify for the process.
Company Name - The name of your company must have been the same for the preceding three months. Name changes during this period make your company ineligible for the dissolution process.
Sales and Trading - Your company must not have traded or sold off any stock in the preceding three-month period. Any such activity renders your company ineligible for company dissolution.
Liquidation or Insolvency - Your company must not be facing any threats of liquidation, any insolvency procedures, and must not have any financial agreements with creditors in place, including Voluntary Agreements. The company dissolution process only applies if the company is debt-free, or is able to pay off debts within 12 months.
If all of these criteria are met, then company dissolution can proceed. It is a relatively quick and simple process, initiated by the submission of a DS01 form to Companies House along with all the creditors, shareholders, and employees. Where the company has more than two directors then the form must be signed by a majority. Where a company has only one or two directors, then all must sign before the submission. This process can be completed in paper form or online, however, there are a number of administrative tasks that must be completed before the company dissolution process can be put in motion.
Payment of outstanding tax liabilities, including PAYE, National Insurance, and Corporation Tax.
Filing final accounts and company tax return with HMRC.
Deregister for VAT.
Pay final wages and any redundancies.
Close down the company payroll scheme with HMRC.
Distribute assets among shareholders.
Confirm solvency - that the company can pay it's outstanding debts.
Close bank accounts.
Notify HMRC of your intention to dissolve the company, to be received by HMRC within seven days of submitting your DS01 form to Companies House.
These are essential administrative steps in the process of company dissolution. For example, if company assets are not distributed among shareholders before dissolution submissions are filed, then remaining assets are claimed by the Crown automatically.
Once the essential administrative steps are complete, you can proceed with your submission. Upon receipt of the signed DS01 form, Companies House processes the information and publicises the filling with a notice in the London Gazette. This serves the purpose of allowing any other objections, or any other creditors to come forwards and make themselves and their outstanding debt known. The date of company dissolution is then set for three months after the publication of that notice, at which point a confirmation notice is published. After the dissolution of your company, you must keep all business records for a period of seven years.
While the process of Company Dissolution may seem to be a relatively straightforward way to end a company and resolve it's activities and liabilities, there can be complications. If a creditor lodges an objection, for example, then your company's eligibility for the process may be dis-proven, and your company may be pursued for remaining debts and issues. At the same time, following a process of straightforward company dissolution prevents you from claiming director redundancy, and this can represent a significant personal financial loss. Director redundancy can apply to any company directors who are regularly paid a salary through the PAYE scheme, and who work at least 16 hours per week for the company, which must have been incorporated for a minimum of two years.
Company dissolution and company liquidation are not the only options available to directors wishing to close their businesses down. Depending on the causes and circumstances, it may be more suitable to register the company as 'dormant,' which leaves it as a legal entity on the Companies House register while declaring it as a business that is not currently active. Alternatively, you may wish to seek a Members' Voluntary Liquidation, which allows solvent companies - meaning those able to settle their debts within 12 months - to appoint a liquidator to oversee the clearance of the debt and the distribution of assets.
With such a broad range of options and eligibility criteria, it is vital to seek the advice and guidance of experts. Smith & Barnes Insolvency works with companies across the U.K to assess financial positions and determine the best possible cause of action. As a team of highly experienced, licensed Insolvency Practitioners, Smith & Barnes can provide a quick and efficient, low-cost service that is fully tailored to your situation, while prioritising discretion and confidentiality. That means that, whatever financial difficulties you face, high quality, bespoke and professional service is within your reach, enabling you to move forward with confidence and certainty.
Call Smith & Barnes Insolvency today to arrange your free consultation and find out whether company dissolution is the best option for your business and its stakeholders.
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