Dissolve a UK Company

You may decide that you no longer require your company because it did not begin trading, or its trading activities have ended.

In these circumstances you may be able to dissolve your company under ss1003 – 1011 Companies Act 2006 (‘CA 2006’).

This is a straightforward process, albeit there are a number of conditions that need to be satisfied and considerations that need to be borne in mind.

You could choose not to dissolve your company when you no longer require it, however this can be problematic, largely because filing requirements still need to be complied with.

Companies can be dissolved via a paper application (Form DS01), or electronically via the UK government website.

The application must be made on the company’s behalf by its directors, or a majority of them (s1003(2) CA 2006).

Dissolution Conditions

The company is not prevented from applying for dissolution.

Ss1004 and 1005 CA 2006 state the circumstances in which a company is prevented from applying to be dissolved.

For example, a company may not make an application for dissolution if, at any time in the last 3 months, it has:

Traded or otherwise carried on business.
Changed its name.
Engaged in any other activity except one which is necessary for the purpose of:
- making an application for dissolution, or deciding whether to do so (for example, seeking professional advice on the application or paying the filing fee for the strike off application).
- concluding the affairs of the company, such as settling trading or business debts.
- complying with any statutory requirement.
- making a disposal for value of property or rights that, immediately before ceasing to trade or otherwise carry on business, it held for the purpose of disposal for gain in the normal course of trading or otherwise carrying on business.

The company notifies the relevant people.

Ss1006 and 1007 CA 2006 state that within 7 days from the day on which the application is made, a copy of it is to be given to every person who at any time on that day is:

A member of the company.
A director of the company (including de facto directors), other than those who have signed the application form.
A creditor of the company. This includes a contingent or prospective creditor (s1011 CA 2006).
An employee of the company.

This is an ongoing obligation.

The company receives no objection from Companies House.

Companies House has a discretion, not a duty, to dissolve a company upon application (s1003(1) CA 2006).

The grounds on which Companies House may object include:

Any of the grounds in ss1004 and 1005 CA 2006.
Failure to of the company to notify under ss1006 and 1007 CA 2006.
Providing false information (s1112 CA 2006)
There is ongoing legal action.
The directors have acted illegally (e.g. wrongful trading or fraudulent trading).

Wrongful trading is a civil offence and is covered by s214 of the Insolvency Act 1986 which states that it occurs when company directors have continued to trade when:

‘They knew, or ought to have concluded that there was no reasonable prospect of avoiding insolvent liquidation’ and they did not take ‘every step with a view to minimising the potential loss to the company’s creditors’.

Essentially, directors must be found to have acted reasonably and responsibly in the time preceding the company’s insolvency to avoid wrongful trading proceedings. They must always have put creditors’ interests first and have not worked for their own benefit.

If directors are found guilty of wrongful trading, they can be held personally liable for the company’s debts from the point they knew the company was insolvent. In some cases, they can also be disqualified from being a director, fined or even imprisoned.

A wrongful trading claim can only be made by a liquidator.

Fraudulent trading is a criminal offence, therefore more serious than wrongful trading.

The main difference between the two is intent. Directors who take part in fraudulent trading have a clear intent to deceive and defraud their creditors and customers.

Dissolution Considerations

Can you be sure that all of the above conditions can be satisfied? If not, is liquidation a more suitable option than a dissolution when your company is no longer required? For example, if the company has ongoing litigation with creditors it is likely that Companies House will object to the application. In these circumstances it might be better to choose liquidation over dissolution. Advice should be sought from an insolvency practitioner in respect of choosing to liquidate a company.
As stated above, a company must notify its creditors that it has made a dissolution application, so it is important to be clear on the company’s liabilities so that no creditors are missed.
The company will need to consider its tax liabilities. Companies House recommends resolving any tax issues with HMRC before making an application as tax liabilities are likely to be a ground for Companies House to object to the application.
If the company has assets (including both tangible assets and intangible assets such as contractual rights) the company should transfer these to another party before making the application, otherwise all such property will automatically pass to the Crown when the company is dissolved. The tax treatment of such a distribution will need to be considered.
The company will need to consider how it can lawfully return any share capital to its shareholders.

The Dissolution

Following receipt, consideration and approval of a valid dissolution application, Companies House will:

Put the dissolution on the company’s public record.
Send an acknowledgment to the address provided in the application and the company’s registered office address in case it didn’t make the application.
Publish a notice in the Gazette.

Restoration

Any person with an interest in the company that has been dissolved, such as those that need to be notified in accordance with ss1006 and 1007 CA 2006, may apply to the court to restore it to the register.