Dissolution

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What is it?
Who can benefit from it?
The Procedure in Brief
Advantages of Company Dissolution
Disadvantages of Company Dissolution

What Is It?

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 it?

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 3 month period in which to consider the request and can reject it at will.

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

Advantages of Dissolution

The Company

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.

Disadvantages of Dissolution

The Company

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.

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