Dissolved Company – What Does It Mean?

Companies differ from businesses in that they are a separate legal entity that lives on beyond the lifespan of the previous owner, saving owners from being personally liable for debts. The transfer of control means that a company can potentially continue for as long as there are people who operate under it. For a limited company to end, it has to become “dissolved”.

But what is does dissolving a company mean? In this article, we outline this, the legal framework around it, the process of dissolving a company and more.

The “dissolved company” meaning

A dissolved company is one that has been formally struck off and removed from the Companies House register under the Companies Act 2006. This differs from a company simply having no employees and quitting trading, as it officially marks the end of its function as a limited company. It cannot hold assets, enter into contracts, incur liabilities and its former assets rest in the Crown as “bona vacantia”, meaning it’s ownerless property. This, effectively, means the company ceases to exist, with serious legal consequences occurring in the event that trade continues in its name.

Dissolving a company happens for many reasons:

• Ceased trading or purpose served – Many small or one-person companies end due to never getting off the ground, or completing the project that they were formed to complete. In the case of limited companies that have never owned assets/liabilities or traded, a voluntary dissolution is available.
• Retirement or change of direction – Company directors or founders may retire or sell their business line and find no more use for the current company. Another reason can be that they wish to operate under a different structure, such as a partnership, and company dissolution can allow them to extract the remaining assets tax-efficiently for shareholders after outstanding debts are paid.
• Insolvency or creditors’ actions – If a company becomes insolvent, meaning its liabilities exceed its business assets or ability to make payments, it may enter a creditors’ voluntary liquidation. When consistent failure to meet payments occurs, creditors can petition the court for compulsory liquidation.
• Regulatory non-compliance – Companies House can strike off a company from the official register if it fails to abide by the multitude of obligations it signed off for, such as annual accounts or confirmation statements. Alternatively, prolonged inactivity can initiate compulsory strike-off.

What are the different types of company dissolution processes?

There are five main types of dissolution processes. All voluntary strike-off procedures are actioned through the Companies House website, whereas non-voluntary action must take place through court orders.

Voluntary dissolution

The voluntary process, often called a “strike-off”, is the simplest kind of process that leads to a dissolved company. It is reserved for a solvent company, which means the organisation has sufficient assets and has no outstanding debts or arrangements with creditors. Its defining feature is that it’s done unilaterally, meaning all interested parties are behind the decision, and have the power to dispute it if against.

It is a cost-effective way to dissolve a company without lasting consequences through a simple, streamlined procedure:

1. Eligibility criteria – The company must not have bought or sold goods or services, nor sold any assets for gain in the ordinary course of business, during the three months before the application. They must also not have changed name, nor must they be subject to any insolvency proceedings (e.g a company voluntary arrangement).
2. Application process – Company directors (all of them) must complete and sign a DS01 form, also known as an application for “strike-off”. Applying online costs £33, whereas a paper DS01 costs £44.
3. Post-application timeline – Within a few days of receiving the DS01, the public register will publish a “first notice” in The Gazette that announces the intended strike-off. From there, interested parties have at least two months to object to the strike-off. Should no valid objections be raised, Companies House issues a second notice, and it converts to a dissolved company.

Members voluntary liquidation

Dissolving a company via this method is only available to solvent companies, after undergoing both balance-sheet and cash-flow tests and paying all outstanding debts in full within 12 months of the process commencing. It is done with the assistance of a licensed insolvency practitioner (IP) to ensure compliance with regulations, give professional advice and maximise tax efficiency.

It happens during the following steps:

1. Declaration of solvency – The majority of company directors must sign a statutory declaration of solvency within five weeks before the resolution to wind up, stating that after making a full inquiry into the company’s affairs, directors believe the company can pay all its debts.
2. Shareholders’ resolutions and appointment of IP – Within five weeks of the declaration, the company calls a general meeting where at least 75% of shareholders (by value), must pass a special resolution to wind up the company via MVL. During this meeting, an IP is formally appointed as liquidator to administer the process and safeguard stakeholder interests.
3. Notification and gazette advertisement – Within 13 days of the resolution, the liquidator places a final notice in The Gazette. This will alert the creditors and other interested parties to the impending liquidation.
4. Realisation of assets and distribution – The IP collects and sells assets tied to the company bank accounts, settles all creditor claims (such as HMRC’s dues and final staff wages), and distributes any surplus funds to shareholders. Distribution is treated as capital relief rather than income. This potentially qualifies for Business Asset Disposal Relief at a 10% capital gains rate.
5. Final statutory accounts and dissolution – After distributing the rest of the assets, paying final staff wages and fulfilling statutory obligations, the liquidator will prepare the final account and company tax return with Companies House.

Creditors voluntary liquidation

If directors seek to dissolve a company voluntarily, but it is insolvent, this procedure allows it under the Insolvency Act 1986. CVLs allow directors to wind up the company in a controlled way, with oversight by creditors and a licensed insolvency practitioner.

1. Decision to liquidate – The company directors assess the company’s financial position and find it has financial difficulties that it has no realistic chance of overcoming. A board meeting is called, and they prepare a statement of affairs, detailing all assets and liabilities, to inform creditors and IP of the company’s position.
2. Shareholders’ resolution – The board will give at least 14 days’ notice of a general meeting, as a special resolution to wind up the company requires 75% of shareholders by value.
3. Notification of creditors – Within 14 days of the resolution, creditors must be notified in writing of the winding-up decision and the date of the creditors’ meeting. The IP will place a notice in The Gazette, alerting any other creditors and interested parties.
4. Creditors meeting and appointment of liquidator – 14 days after the notice, creditors review the Statement of Affairs and can question directors and the proposed IP. They may nominate an alternative liquidator if they wish. By default, the IP is nominated by directors unless creditors vote otherwise, but the IP’s duty is to the creditors, not the directors.
5. Liquidator takes action – Once the IP is nominated, they secure and sell the company assets. They investigate the company’s affairs and the director’s conduct, reporting any misconduct to the insolvency service. Proceeds are distributed in statutory order: secured creditors, preferential creditors, unsecured creditors and finally any surplus to shareholders.
6. Conclusion – Upon realisation of asset distribution, the IP calls a final meeting to creditors and, then, a final meeting of members if any surplus exists to present accounts of liquidation. After filing accounts, the IP applies to have the company struck off the Companies House register.

Compulsory Liquidation

Compulsory, as the name implies, is a process in which the company’s dissolution occurs regardless of the company director’s wishes. Under part IV of the Insolvency Act 1986, creditors (including HMRC themselves) can petition the court to wind up an insolvent company if it cannot act on unpaid debts. This usually, but not always, occurs after a statutory demand or a judgment for payment goes unpaid.

The process is as follows:

1. Court order – If the judge finds the company has no viable reason to continue trading, then it will issue an order to start the process.
2. Official receiver – An official receiver will be appointed to investigate company assets, creditors and former directors. They may be paired with a licensed IP later in the process to liquidate assets and distribute proceeds, if possible.
3. Company dissolution – Once all obligations are met, the company is dissolved.

Compulsory strike off

If a company fails to meet basic obligations, such as filing confirmation statements, annual accounts or tax returns, then Companies House may assume the company is not carrying on business or in operation. This gives them the power to mandate that the company is dissolved.

1. Warning – Companies House will issue a formal warning before company dissolution. This will allow a two-month objection period before the company is officially dissolved, during which any interested party can object to the strike-off, so long as they have valid reasoning. Common objections are ongoing legal proceedings, outstanding debts, or that some other type of company dissolution is in the works.
2. Company dissolution – Company dissolution will commence after the time period has passed. Assets become bona vacantia and are passed to the crown, and business activities cease.

What obligations do I have before the company is dissolved?

For directors and other authoritative figures in a company, there exist certain obligations that have to be handled before the company is dissolved. Failure to meet them may cause the company to be investigated, delayed dissolution or directors being held personally liable for misconduct.

1. Staff and wages – All final staff wages must be paid, including holiday pay, bonuses and notice periods. For staff who are made redundant, staff redundancy rules may apply, meaning proper notice must be given, redundancy letters must be issued, and statutory redundancy payments made where eligible. Redundancy pay is treated as a preferential creditor claim in insolvency, and may be covered by the national insurance fund in a CVL if a company cannot afford the payment.
2. Final company filings – Final statutory accounts must be prepped and submitted to Companies House. Information about the company’s last trading period will be clearly outlined within, and is a legal requirement before dissolution. A final company tax return must be sent to HMRC, including any final corporation tax liabilities.
3. Business assets – What happens to assets differs according to what type of company dissolution is taking place, with any assets not dealt with before dissolution may vest in the Crown as bona vacantia.
   • Member’s voluntary liquidation – Assets are distributed tax-efficiently to shareholders.
   • Creditors’ voluntary liquidation – Assets are sold to repay creditors, with a licensed insolvency practitioner managing the process.
4. Closing accounts and notifications – Companies must close all business bank accounts and inform HMRC that the company is ceasing to trade. Directors should ensure the register contains correct information to avoid and defend against allegations of unfit conduct or misleading the registrar.

Can you reverse the company dissolution?

Yes, although the process is as rigid as dissolving a company. There are several points that you can reverse the company’s dissolution.

• Before company dissolution – Within the two-month Gazette notice period, dissolution can be halted. Send a formal objection explaining why the strike-off cannot proceed.
• After the company is dissolved – If the company was struck off by Companies House, you can restore it so long as the company was active at the point of dissolution, and all outstanding documents and penalties are filed and paid. If it was voluntarily dissolved, you must show a valid reason for its dissolution and appeal.

Conclusion

Dissolving a company is a lengthy and often stressful process, one that reflects the price of creating an organisation granting limited liability that is designed to last beyond its owners. The process is designed to protect interested parties as much as possible, provided all Companies House’s requirements are met.

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