Close your company fast
Dissolution, also known as ‘striking off’, is when a company is struck off from Companies House. It 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 exists. However, dissolution is not a formal insolvency procedure, and it is not frequently used, so if you are considering a dissolution and aren’t familiar with the dissolution of a company procedure, we explain it all below.
Dissolution versus liquidation
Dissolution and liquidation are very different processes and dissolution is not an alternative to liquidation. The main difference is that dissolution is a way to close a company when no debt is present, or where any outstanding debt or liabilities have already been settled three months prior to making the application to strike off the company.
Solvent liquidation is where the company is able to pay its debts within 12 months of entering liquidation in full along with the cost. Sometimes tax advantages can be achieved using this process, distributing the surplus funds to shareholders, allowing the distribution to be subject to Capital Gains Tax as opposed to Income tax.
On the other hand, insolvent liquidation is when a company is closed down and cannot pay what it owes. When a company is liquidated, the company assets will be sold to pay off as many debts as possible and because it is a formal insolvency procedure, a licensed insolvency practitioner must be used. Find out more about liquidation here.
Is dissolution right for me?
A company’s dissolution can be requested under Section 1003 of the Companies Act 2006, but it is only permitted under certain specific circumstances. In order for dissolution to take place, creditors must be notified of the intention of dissolution and can reject the application if they see fit.
Other conditions that must be met in order for your company to be eligible for dissolution are:
- The company must not have traded or sold off any stock in the last three months
- The company must not have changed names within the last three months
- You must not be threatened with liquidation or any other type of insolvency proceedings
- You must not have agreements with creditors such as a company voluntary arrangement
How do I dissolve my company?
If you think that dissolution is the right solution for your company, to begin the dissolution of a company procedure you are required to complete and submit the DS01 Application Form and pay a filing fee. The form must be signed by a majority of the directors and then sent to Companies House for processing.
A notice will then be placed in the Gazette announcing the decision to dissolve the company, and the company will be dissolved three months after the notice has been published if there are no objections. The Gazette will then publish a final notice confirming the dissolution of the company. Following your company’s dissolution, you are required to keep any records and documents relating to the business for seven years.
Dissolution is not an alternative to liquidation: any interested parties such as shareholders and creditors seeking to revive the company can be investigated 20 years following the dissolution, and the directors remain potentially liable should the company be restored to the register within the 20 years following. In addition, dissolution doesn’t terminate a company’s existing contractual agreement.
Are there any disadvantages to dissolution?
Although the dissolution of a company might seem like a straightforward procedure, it’s important to be cautious. False information in your application or the failure to notify an interested party can result in severe consequences such as disqualification, a hefty fine, or even imprisonment.
What’s more, should a creditor believe that your company hasn’t been closed down properly, they can appeal for your company to be restored at Companies House which would allow your creditors to continue to chase you for any unpaid debts. Another lesser-known disadvantage of dissolution is that you don’t qualify for director redundancy.
How McAlister & Co can help
If you are unsure about the dissolution of a company procedure, if your application for dissolution is rejected or if you are interested in finding out about alternative options, our friendly and approachable team will be more than happy to help. At McAlister & Co, we are business rescue experts – so if you find yourself in financial difficulty, contact our expert team today to discuss your next steps. Alternatively, why not download our guidance notes for directors for more help and advice.