A Directors Guide To Company Dissolution
Is There a Way to Close My Company Simply and Cost Effectively?
Yes, you can close your company. The process is called dissolving a limited company or dissolution. It’s a handy and cost-effective tool. However, don’t try and dissolve a company with debts of £5k or more as it will just be rejected.
What is Dissolution
A voluntary dissolution can remove companies from the Companies House Register if you meet certain conditions. Most specifically, you cannot dissolve a company if it has significant debts. You cannot dissolve your company unless ALL of the requirements below are met.
This process is a provision in the Companies Act to allow the removal of the company from the Companies Register, typically when the company is dormant.
A company can only be dissolved if:
- It has not traded for three months; this must be a genuine cessation of trade!
- It has no assets, property, or cash at the bank.
- The creditors are informed, requesting their permission for the company dissolution.
- The company has not changed its name in this period.
- The company has not disposed of any property or assets (this may include land, buildings, plant, equipment, debtors and other assets).
Please note that paying off debts does not necessarily constitute trading.
How Do I Dissolve My Company?
To begin the company dissolution process, you will need to submit a DS01 form, which must be signed by the directors. The form must be sent to Companies House and a copy will then be sent to all important parties, including creditors, employees, and shareholders. The process can also be completed online through the Companies House website.
Once you have sent the form off, you’ll get a letter from Companies House to let you know if they have the correct details. If they do, your request will be published in the London Gazette. If no one objects, the company will be dissolved two months after the initial notice. Then, a final notice will be published in the Gazette to confirm the company has been officially dissolved.
After the company is dissolved, you need to retain any documents or information relating to the company for the next seven years.
What Happens to Debts Once a Company is Dissolved?
If your company has debt to HMRC or creditors which it is unable to pay, they will likely file an objection to the dissolution. Creditors can also object if they believe your company has not been closed with the correct information. Consequently, your application for dissolution will be closed and you will then have to consider another form of company closure such as a Company Voluntary Liquidation (CVL) or Administration.
When You Cannot Dissolve Your Company
A formal insolvency procedure has started. These procedures include a CVL, CVA, administration, receivership or compulsory liquidation under the Insolvencies Act 1986.
A winding up petition has been issued against a company.
Directors Health Warning!
The Insolvency Service has been given powers to investigate directors of companies that have been dissolved as set out in the Ratings (Coronavirus) and Directors Disqualification (Dissolved Companies) Act.
The Act is retrospective and will enable the Insolvency Service to also tackle Directors who have inappropriately wound-up companies that have benefited from Bounce Back Loans. So, if you have a Bounce Back Loan, do not try and dissolve the company! All the banks receive a notice from Companies House if you try and they will object.
Advantages and Disadvantages of Dissolution
Advantages:
- It is a quick and clean removal of a dormant company from the Companies House Register.
- It avoids the costs of liquidation, fees, and expenses (if small debts!).
- It avoids formal investigation into the conduct of the directors as required in liquidation.
Disadvantages:
- Creditors may reject the application; their permission is required to proceed with dissolution.
- Any shareholder, creditor or liquidator can apply to revive the company for up to 20 years after dissolution if they believe that the creditors did not receive the correct notice, the company was trading, or there was some fraud or other unjust action.
- Dissolution cannot terminate leases, HP agreements, or contingent liabilities. These circumstances require receivership, administration, or a CVL.
Other Alternatives to Dissolving a Company
- Leaving a company dormant: This may be an option if you think you may need the company again. You will need to keep in touch with Companies House and file a set of dormant accounts each year.
- A Members Voluntary Liquidation (MVL): This is a formal process where any assets are “liquidated” and the proceeds are distributed to the members. All debts of the company have to be paid off, and a statement of solvency declared. An MVL can only be done by a Licensed Insolvency Practitioner.