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 dissolution?
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
It 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. |
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Disadvantages
of Dissolution
Does 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.
For further information for company directors
see Directors
Responsibilies
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