Summary
When a company is struck off some of its assets can pass to the
Crown as "bona vacantia" – which literally means "vacant
goods", or ownerless property.
Crown as "bona vacantia" – which literally means "vacant
goods", or ownerless property.
The Department for Business, Innovation and Skills (BIS) has
been consulting on some changes to company law rules in this
area. Although not primarily a tax issue, dissolving a company
can have tax implications.
been consulting on some changes to company law rules in this
area. Although not primarily a tax issue, dissolving a company
can have tax implications.
Striking off and tax
There are basically two ways of bringing a company to an end.
One is to wind it up by means of a formal liquidation.
The other is to dissolve it by having the company's name struck
off by the Registrar of Companies (the directors can ask for this
under s 652A, Companies Act 1985). This latter, strike off,
route is often preferred for smaller companies, as it is
quicker, easier and cheaper.
off by the Registrar of Companies (the directors can ask for this
under s 652A, Companies Act 1985). This latter, strike off,
route is often preferred for smaller companies, as it is
quicker, easier and cheaper.
For tax, a distribution of assets to its shareholders by a
company which is then dissolved is strictly an income
distribution. But shareholders may prefer their pay-out to be
treated as a capital gain (or loss).
company which is then dissolved is strictly an income
distribution. But shareholders may prefer their pay-out to be
treated as a capital gain (or loss).
Under Extra-statutory Concession (ESC) C16, providing
certain conditions are met, HMRC is prepared to regard
the distribution as though it has been made under a
formal winding up. This means that the amount
distributed is treated as a capital receipt for the
shareholders.
certain conditions are met, HMRC is prepared to regard
the distribution as though it has been made under a
formal winding up. This means that the amount
distributed is treated as a capital receipt for the
shareholders.
To get ESC C16 treatment, the company and its
shareholders must give HMRC various assurances, before
the transaction goes ahead.
shareholders must give HMRC various assurances, before
the transaction goes ahead.
The requirements are that:
The company satisfies [HMRC] that:
(a) it does not intend to trade or carry on business in future, and
(b) it intends to collect its debts, pay off its creditors
in full and distribute any balance of its assets to its
shareholders (or has already done so), and
in full and distribute any balance of its assets to its
shareholders (or has already done so), and
(c) it intends to seek or accept striking off and dissolution.
The company and its shareholders agree that:
(a) they will supply such information as is necessary to
determine, and will pay, any corporation tax (CT) liability
on income or capital gains and any ACT liability … due on
distributions made prior to 6 April 1999.
determine, and will pay, any corporation tax (CT) liability
on income or capital gains and any ACT liability … due on
distributions made prior to 6 April 1999.
(b) the shareholders will pay any CGT liability (or CT in
the case of a corporate shareholder) in respect of any
amount distributed to them in cash or otherwise as if the
distributions had been made during a winding-up.
the case of a corporate shareholder) in respect of any
amount distributed to them in cash or otherwise as if the
distributions had been made during a winding-up.
The bona vacantia guidelines
Apart from the tax implications, striking off a
company holds a potential trap for the unwary in the
bona vacantia rules.
company holds a potential trap for the unwary in the
bona vacantia rules.
Distributable reserves can be paid out before the
company is struck off, but the strict legal position
for share capital and any undistributable reserves
is that they cannot be repaid to shareholders on a
dissolution.
company is struck off, but the strict legal position
for share capital and any undistributable reserves
is that they cannot be repaid to shareholders on a
dissolution.
Therefore, any share capital etc should pass to the
Crown. If these funds are paid to
shareholders, it will be an unauthorised
distribution and the Crown could claim it back. This
might not matter for a £2 company but could be a
problem where the share capital is a significant
amount.
Crown. If these funds are paid to
shareholders, it will be an unauthorised
distribution and the Crown could claim it back. This
might not matter for a £2 company but could be a
problem where the share capital is a significant
amount.
However, help is at hand. The Crown can disclaim
assets to which it is entitled under the bona
vacantia rules. It is prepared to do this in the case of
a striking off where the company's share capital is
£4,000 or less.
assets to which it is entitled under the bona
vacantia rules. It is prepared to do this in the case of
a striking off where the company's share capital is
£4,000 or less.
Full details are in Guidelines BVC17 published by the
Treasury Solicitor's Bona VacantiaDivision. These
say that it would be unreasonable for the
Treasury Solicitor to expect a company to be put into
formal liquidation when the costs of doing so
would make it uneconomic, especially bearing in mind
that HMRC's ESC C16 permits a distribution for tax
purposes without the company having to incur the costs
of a liquidation.
Treasury Solicitor's Bona VacantiaDivision. These
say that it would be unreasonable for the
Treasury Solicitor to expect a company to be put into
formal liquidation when the costs of doing so
would make it uneconomic, especially bearing in mind
that HMRC's ESC C16 permits a distribution for tax
purposes without the company having to incur the costs
of a liquidation.
The conditions for the Treasury Solicitor to waive the
Crown's right to any funds are that:
Crown's right to any funds are that:
- a company is struck off under s 652A,Companies Act 1985
- the shareholders take advantage of ESC C16
- the amount of the company's share capital etc is £4,000 or less.
Companies Act 2006 – 1 October 2009 changes
The law about company dissolution and bona vacantia
was replaced by ss 1012–1023 of Companies Act 2006
with effect from 1 October 2009 which made some
changes to the rules.
was replaced by ss 1012–1023 of Companies Act 2006
with effect from 1 October 2009 which made some
changes to the rules.
In particular, there are changes to the time within which
the Crown may disclaim title to the property of dissolved
companies vesting as bona vacantia:
the Crown may disclaim title to the property of dissolved
companies vesting as bona vacantia:
- The Crown will have three years to disclaim such property.
- Anyone interested in the property can firce a decision by the Crown representative by making a written application.
- The Crown will have 12 months in which to decide whether or not to disclaim.
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