When you apply to Companies House to have your company dissolved, your company must meet a series of criteria and anyone can make an objection to stop the dissolution.
The criteria involved and the opportunity for others to object can make dissolution an uncertain process for directors looking to wind up their business. That’s why it is always worth seeking expert advice and exploring all of the options available to you before making your application to Companies House.
Many business owners and groups of directors consider the dissolution route before other options because it is often thought to be low-cost. However, choosing dissolution means that directors lose their entitlement to employment entitlements (referred to as Directors Redundancy).
Director redundancy works in the same way as employee entitlements, in that if a company is unable to pay its debts, including employment entitlements, then it is insolvent, and can be liquidated. Once in liquidation, employees, including directors, can claim for their employment entitlements from the National Insurance Fund (the Fund). Directors redundancy claims from the Fund average £11,000 per director.
So, it can be well worth considering alternative routes such as voluntary liquidation when closing your company, even if you’re initial thought was that the cost would be prohibitive..
If you have been through the dissolution process and Companies House has halted your application or your business has been re-instated on Companies House, there are alternative options out there for you to consider.
Reasons why Companies House might reject dissolution application
If your dissolution has been stopped by companies house, then you will be informed of the reason for this. There are any number of reasons why an application for dissolution may have been stopped by Companie House, but by far the most common of which are:
- It has outstanding debts or returns due to HMRC
- It has outstanding debts to a trade creditor
When you make your application for dissolution to Companies House, this comes with a number of conditions that you cannot breach. These conditions include; not changing the name of the company, to have ceased all trading and to not be subjected to insolvency proceedings. These conditions must all have been adhered to for a full three months prior to your application and after the application has been made. Some of the other reasons we see applications being rejected are:
- Action is being taken against the company
If some form of action is being taken (or is pending) against the company, such as legal action or attempts to recover money owed (such as a winding-up petition or action in small claims court), then this may result in your application being rejected.
For example, if your application has been denied because of unpaid debts, then you will need to pay the debts in full in order for an application to be successful.
- Any declarations on the application form are false
Should any incorrect information be included within your application, then this can result in it being denied by Companies House.
- Issues related to the directors
It is the responsibility of the directors to inform all interested parties that an application for dissolution has been made. This gives the relevant parties time to object should they need to.
Should your business’s application for dissolution have been rejected, or if you are looking for alternatives to dissolution, then we have given some information below about alternative ways to formally close your company.
Members Voluntary Liquidation (MVL)
Members Voluntary Liquidation is a tax-efficient way to close your company to wind up a company and distribute its assets. Collectively the directors and shareholders of a company will make the decision to place the business into liquidation and a majority of 75% is needed for this decision to go through. Although members voluntary liquidation is entered into willingly by company directors, the voluntary winding up petition must be advertised in The Gazette.
You can find further information on the procedure here.
This is a formal insolvency process and therefore must be carried out by a licensed Insolvency Practitioner, so be sure to seek professional advice when exploring this option.
Register the company as dormant
Registering your company as dormant is another alternative to dissolution. This may be of interest if you think you might want to restart the company at any point in the future, as restoring a dissolved company can only be done within six years and is costly.
In order to register your company as dormant, first you should pay off any debts. This includes to suppliers, customers, HMRC, staff, utilities and more. It is also advisable to close down any company-associated bank accounts as the company must not receive any interest payments. Once all debts have been paid, you will need to let HMRC know that your company is now dormant.
This can be done by writing to your local Corporation Tax Office stating the date on which the company became or will become dormant. You do not have to inform Companies House that your company is dormant until it is time to submit your annual accounts.
Even after HMRC has confirmed your company’s dormant status, you must continue to meet a number of other Companies House filing obligations, including:
- Your confirmation statement must still be submitted
- Updates when a new director or company secretary is appointed or terminated must still be submitted
- Any changes to company address must still be submitted.
Every business is different, and so the best thing to do in this situation is to contact an expert to look at your particular situation with you.
If you have any questions, or would like to talk this through with one of our experts, then get in touch with our team today.