Dissolution of companies – beware of the pitfalls

The procedure for dissolving a company is considerably cheaper and more straightforward than instructing a liquidator to wind up the company, although certain formalities must be observed in accordance with the Companies Act 2006.

Directors should seek professional advice to ensure the dissolution procedure is correctly followed.

Registrar of Companies

Before applying to the Registrar of Companies to dissolve a company, directors must consider the following:

• the company must not have traded for a period of three months prior to making the application
• the company must not have changed its name for a period of three months prior to the application
• the company must not be involved in any legal proceedings
• the dissolution of a company is not absolute; it is possible to restore a company to the register and the directors may still be liable for the debts of the company
• all assets of the company, such as cash at the bank, plant and machinery, or land owned by the company, should be transferred out of the company’s ownership

London Gazette

Upon filing the application, Companies House then places an advertisement in the London Gazette, giving third parties three months to object to the proposed dissolution. If there are no objections during this period, the company will be dissolved.

Directors must be sure that the affairs of the company are in order as it is a criminal offence for directors to make an incorrect application to Companies House.

In addition, ensuring all assets have been transferred out of the company’s ownership before the application is submitted is very important. Failure to do so will mean that such assets will transfer to the Crown as “bona vacantia” on dissolution. It makes sense to complete a brief, asset sale agreement to provide evidence that all assets of the company were transferred prior to dissolution. If the transfer of assets is not dealt with properly the directors and shareholders may have to go through the time-consuming and expensive process of applying to the court to restore the company to the register to rectify their mistakes.

Unlike liquidation, dissolution is a reversible process which means that aggrieved creditors can apply to the court to restore a company to the register. Also, it is possible for directors to remain liable for the debts of a company following dissolution, especially if they have neglected to follow the steps outlined above.

For more information about company dissolutions, please contact our commercial team.