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Dissolution

Dissolution


Frequently asked questions on liquidation and dissolution


What to do if you can’t afford to liquidate your Company?

In the perfect world if an insolvent company needs to cease trading and call it a day, the directors should take steps to liquidate it…

…but then the world is not perfect!


Liquidation using an insolvency practitioner

One option is to consider instructing a licensed insolvency practitioner like me to help with a creditors voluntary liquidation (CVL).

The liquidators are usually paid from the company’s assets and this will usually incur a cost of circa £5,000.00 upwards.


Liquidation through the Court

Another option is to instruct solicitors to help lodge an application to court for a compulsory liquidation.  This currently costs around £3,500.00 including the solicitors fees.

If directors don’t take any action ultimately creditors could force the company into compulsory liquidation / winding up through the court themselves.


Dissolution

If directors take no steps to mitigate the company’s insolvency status then Companies House could eventually apply to strike off/dissolve the company for non-filing of statutory annual return and accounts. 

Creditors can object to this leaving the company in limbo or giving creditors the opportunity to liquidate per above. HM Revenue & Customs (“HMRC”) are the mostly likely to object if there are outstanding tax returns.

If dissolution takes place informally the company can be reinstated at any time within the following twenty years and a liquidator could be appointed to investigate why the directors allowed the company to be struck off and investigate the company’s affairs.


Voluntary Dissolution

If the company has no funds to liquidate, the directors can take steps to apply for the dissolution of the company in a proper manner.

The following criteria will apply

  • The company must have ceased to trade at least 3 months prior.
  • The company must not have changed its name within the last 3 months
  • The company should not be subject to any legal proceedings such as a CCJ.
  • There must be no assets remaining – this includes outstanding Directors Loan Accounts (Directors should take care in selling assets at market value and distributing the funds to creditors in the same order they would be paid had the company entered liquidation to ensure no preferential payments are made)

It is good practice to write to all creditors giving them notice of intention to dissolve the company and inviting them to liquidate the company

Application made to Companies House (by lodging a DS01 form) to strike the company off.  The current fee is £10.00.

A copy of the application to be sent to all known creditors, members, employees, any manager or trustee of pension fund and other directors giving them the opportunity to object to the dissolution.

If there are no objections Companies House will dissolve the company within two months.

Directors should take care before dissolving a company – penalties for offences caused when applying for dissolution include fines, disqualification and in extreme cases up to seven years imprisonment.



David Kirk ACA FABRP

David Kirk

David Kirk is a Chartered Accountant and Licensed Insolvency Practitioner.
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