What happens to your company's assets if it is struck off?
Posted on 7th November 2019 at 21:06
When you set up a Limited Company, all the directors have legal responsibilities for ensuring the company meets all of it's obligations. If key legal obligations are not met, such as; filing your accounts on time, and submitting your confirmation statement, your company could be struck off - but what does that mean for the company and its assets?
So, as I have mentioned, two of the most important obligations a Limited Company has are:-
To submit Financial Accounts to Companies House by the filing deadline. This is usually 9 months after the end of the company year - but you can find the date at Companies House. Companies House do also send you reminders by post.
To submit a Confirmation Statement to Companies House by the filing deadline. This Confirmation Statement simply confirms the basic company information held on the public register at Companies House is correct and is where you can put through any updates to shares etc. This usually falls due on the anniversary of the company incorporation and must be filed within two weeks.
What does it mean to be "struck off"?
If a Limited Company does not meet the above obligations, Companies House can make an application for the company to be "struck-off" - in other words for the company to be dissolved and removed from the register.
Companies House will write to the directors of the Company at the registered office address giving them notice of their intention to strike off the company to give them two months notice. If the documents are not filed within this period, the company will be struck off.
What happens to the assets of a dissolved company?
This is the crucial part!
The Companies Act 2006 set out that any company assets remaining on dissolution, will pass to the Crown. The Crown then appoints an Official Receiver who gets on with the business of distributing the company's assets to anyone the company owes money to, or otherwise, the Crown simply keeps the assets.
This includes the company bank balance! Yes, at the point the company is struck-off, the bank account is frozen and the funds pass to the Crown.
The objective of the Crown is to make as much money as possible from each asset sale. The authorities, therefore, will try to sell assets at the market rate, whether its intellectual property, land or a printer.
Who gets the money first is determined by law. In the case of limited liability companies (that are not publicly traded), the dissolution process usually seeks to pay off the firm's creditor's first. The Official Receiver attempts to sell the assets of the company and then uses the funds raised to pay back lenders a proportion of the original amount of money they gave as credit. The authorities may also sell assets to meet any outstanding tax liabilities.
Is company land treated in the same way as other assets?
If a company is struck off before its assets have been dealt with, the majority of company assets are usually sold on the market for the highest price possible. However, the same is not always true of land.
In some cases, the Crown will 'disclaim' an asset meaning the authorities will decide to give up their interest in a particular asset and hand it over to somebody else. Usually this happens when taking ownership of a company's assets entails a liability. While the Crown wants to ensure that it liquidates company assets to repay creditors, it won't always dissolve assets that have running costs that it must pay to third-party owners.
The case of leasehold land and property is a clear example of this. If the Crown were to take ownership of assets under leasehold arrangements, then it would have to pay regular fees to property owners in the form of leasehold payments - something that it doesn't want to do. As a result, it will often waive its right to take ownership and allow assets to remain in the hands of a third-party.
The case of freehold land is different. Here the Crown places the property in 'escheat'. The idea here is that the Crown can assert some ownership over the property (and bring it into the Crown estate), but doesn't have to pay the ongoing running costs on the property, limiting its liability. Most of the time, the Crown will dispose of the property if it can find purchasers.
Sometimes limited liability companies use the property of others to carry out their business. In almost all cases, the owner of that property will want to retain ownership, even if a company is dissolved. Under the current rules, the owner of the property can use the courts to make the case that they should take ownership and not the Crown.
The Crown, however, can oppose claims that owners make through the courts. If you find yourself in a situation where you own land or property of a company that is being wound up, then it's best to seek legal advice.
What happens to the shares of a dissolved company?
When a company is struck off before its share capital has been distributed, this is passed to the Bona Vacantia Division of the government legal departments. The Bona Vacantia Division then decides whether it's worth selling the shares or disclaiming them, as discussed above. It is important to ensure that any assets - including share capital - are dealt with and transferred out of the company’s ownership before it is dissolved.
If you have received a notice about potential striking off of your company - do not bury your head in the sand - seek expert help urgently! And if your company is having financial worries and you are considering closing your company, it may be a better option to speak to your creditors first and attempt to arrange a payment plan for any debts. We can help you come up with a feasible strategy for this, and will also be able to help put together a proposal for creditors if you need one.
If you do decide that closing is the right route for you and you will have some assets left over, feel free to get in touch – book a call with Nicola here, or drop us an email. We would love to help you.
Nicola J Sorrell
- Effective Accounting
Founder | Xero Champion | IR35 Expert
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