A dissolution, or a ‘strike off’, is a closure process designed for solvent limited companies. Before applying for a strike off, the company must settle and pay all its outstanding liabilities in full. The dissolution process is not suitable for companies unable to repay their debts, as creditors will likely object to any proposed strike off if their debts are not satisfied.

For companies that cannot repay their debts, formal liquidation is the appropriate course of action. We can provide free advice and guidance on your situation.

When is dissolution appropriate?

A dissolution is a process wherein a solvent limited company that can settle its debts and with no ongoing liabilities is closed, striking it from the register of companies at Companies House. This process is often referred to as a ‘strike off’. Doing so is common practice for companies that have come to the end of their useful lives or if the directors no longer wish to continue trading.

All interested parties, including current employees, those with employee pension funds, and any existing or contingent creditors, must be informed, and the process will take three months at minimum to complete.

For a dissolution to be viable, the company cannot be involved in any legal or insolvency proceedings in the last three months, such as the following:

• An administrative or Law of Property Act receiver in office.
• The company is or could be subject to prosecution or disqualification.
• Have a pension scheme that has not been finalised.
• Changed its name.
• Traded or disposed of stock. It can, however, dispose of assets which it previously used as a means of trading.

Creditors can also restore the company to the Companies House register via a court order if they have a valid reason to, like if new evidence of company assets emerges.

Companies can be reinstated up to six years after their dissolution.

How is dissolution different from liquidation?

Both dissolution and liquidation end in the closure of a limited company, but they are different processes designed for companies in different solvent situations. Dissolutions are intended for solvent companies that have stopped trading. Liquidations are a formal insolvency process that close companies that still have liabilities.

• Dissolution
  Dissolutions are intended to close solvent limited companies with no outstanding liabilities (debt-free) with directors looking to close. The process involves informing all creditors and clearing all debts.
• Liquidation
  Companies that can’t pay their debts can enter one of two types of liquidation: voluntary liquidation, instigated by the directors, and compulsory liquidation, instigated by the creditors.
  • Creditors Voluntary Liquidation (CVL)
    A Creditors Voluntary Liquidation (CVL) is designed for companies that cannot repay their outstanding liabilities. The procedure is initiated by the directors and managed by a licensed insolvency practitioner who ensures that the company is closed in an orderly manner, with all outstanding, unsecured debts written off.
  • Compulsory Liquidation
    Companies that don’t act when they become insolvent can be forced into compulsory liquidation. Creditors can do this by filing a winding-up petition, which, if unchallenged, becomes a winding-up order. The petition is advertised in the local Gazette, freezing the company’s bank accounts and making trading impossible. At this point, the company enters compulsory liquidation, and directors have little to no say in who is appointed as the liquidator.

Can you dissolve a company with debts?

Companies can apply to dissolve their company with debts. However, creditors are likely to object, which can lead to significant risks and complications if the process is misused in such a way.

• Creditor objections to strike off
  Try to dissolve a company with outstanding debts, and one or more of the creditors will likely issue an ‘Objection to Company Strike Off Notice’. Creditors are notified of a company’s attempt to strike off when it is advertised in the local Gazette, giving them the opportunity to object.
  If the company is successfully dissolved and a creditor has a valid reason to, they can have the company restored via a court order. The dissolution is voided, with the company restored to the register at Companies House.
• HM Revenue & Customs
  HM Revenue & Customs can pursue a company if it owes VAT, PAYE, Corporation Tax, and National Insurance. Companies House automatically informs HMRC of a company’s intention to strike off, and they will likely object to any attempt at dissolving when the company owes them money.
• Government restoring dissolved companies
  As of February 2022, The Dissolved Companies Act allowed The Insolvency Service to investigate directors of dissolved companies without having to restore that company. The government has already used these new powers to issue directors bans and even prison sentences on directors they suspect of dissolving their companies to avoid repaying their Coronavirus Bounce Back Loans.

Help if you need to close an insolvent company

If your company has minimal assets and is no longer trading, a dissolution would be a suitable closure choice. However, if your company is insolvent and unable to repay its debt, a dissolution isn’t a suitable closure option. Other options exist that allow you to close the company in an orderly manner and limit any potential ramifications.

• Creditors Voluntary Liquidation (CVL)
  Closing an insolvent company that cannot afford to repay its liabilities as and when they fall due should be done through a Creditors Voluntary Liquidation (CVL). The process is managed by a licensed and regulated insolvency practitioner. Through this, the insolvent company is closed and creditor pressure frozen, with the unaffordable, unsecured debts written off, allowing the directors to move on from the old company and start afresh.
  More on Creditors Voluntary Liquidation (CVL)
• Other options
  While liquidation would be your go-to option if the company has no future and closure is the best option, that might not automatically be the case. Depending on your circumstances, it might be possible to rescue the company and allow trading to continue. Options could include:
  • Company Voluntary Arrangement (CVA)
    A repayment arrangement wherein the company repays a portion of its debt at a rate it can afford, usually over a period of five years.
  • Administration
    A formal restructuring process that allows the company protection from creditor action. During this time, the insolvency practitioner devises a plan to rescue the company as a going concern, with the aim of achieving a better result for creditors than what might be possible through liquidation.

In summary

Dissolutions are designed for solvent companies. Attempting to dissolve an insolvent company that cannot repay its liabilities can lead to creditors objecting to the strike off. There could be legal consequences for improperly dissolving the company, too. If your company is insolvent and you wish to close it, a Creditors Voluntary Liquidation (CVL) is the process best suited for those circumstances. Doing so will put a stop to creditor action, with all unaffordable, unsecured debt written off. Speak to us for free, impartial, confidential advice with no obligation.

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