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Dissolution of Company
What Is Dissolution
This is not in itself an insolvency procedure. Dissolution relates to Section 652A of the Companies Act 1985 allowing the removal of a company from the Companies Register in Cardiff when it has become dormant.
Who can benefit from it?
In order to benefit from dissolution the company must follow the criteria detailed below, but please note it should not be utilised as a cheap method of liquidation as despite the company being dissolved creditors remain entitled to seek its restoration and liquidation with a view to the conduct of the directors being investigated and appropriate actions brought. Dormant or non trading companies who have generally ceased trading for a period in excess of 3 months and have no assets at all.
In some circumstances companies with a small number of creditors although not generally if they include the Government departments who wish to avoid the costs of liquidation
The Procedure in Brief
Application for striking off pursuant to S652A of the Companies Act 1985 is made by the directors of the company or a majority of them.Where the company has outstanding creditors they must be circulated advising of the intention to dissolve the company requesting their permission for the process to proceed. Creditors have a three month period in which to consider the request and can reject it at will.
The Registrar of Companies also advertises notice of the application for striking off in the London Gazette. The company will not be struck off until three months after the advertisement appears.
In order for any dissolution to be effective the company must have retained its existing name throughout the three month period and ought not to have traded or disposed of any assets during this period.
If no rejection to the proposed dissolution is received from creditors within the three month period, notice of the striking off is advertised in the London Gazette by the Registrar of Companies.
Advantages of Dissolution
The CompanyIt avoids the costs of liquidation and, where handling only a small number of creditors, provides a quick clean removal of a dormant company from the company’s register, avoiding the penalties and fines that can be imposed on directors and company secretaries for late filing and non filing of returns.
Disadvantages of Dissolution
The CompanyDoes not preclude interested parties such as shareholders and creditors from seeking to revive the company for a period of up to 20 years following dissolution.
Directors
From a directors perspective it may seem an attractive alternative as it avoids formal investigation into the director’s conduct. However, dissolution does not terminate existing contractual arrangements and if the directors are aware of potential actions against the company, dissolution will not avoid them and will only become a weight hanging over the directors shoulders throughout the 20 year period. Dissolution does not preclude the company from being restored to the Registrar of Companies, liquidated and actions brought against the directors if appropriate.