The pros and cons of dissolution

The pros and cons of dissolution

June 14, 2022 by Sandra

In this blog, we’ve shared the pros and cons to dissolution for your business, and how our insolvency experts can support you in the process...

Dissolving your company is a very serious consideration on your part.

As a Director, you bear the burden of making the decision, and dissolution is permanent because your company can never come back from it once Companies House finalises the official notice.

Before you make the absolute decision, you should always discuss dissolution with an insolvency practitioner who knows the legal frameworks involved in this process.

We are discussing the pros and cons to dissolution to help you decide what path you should take.

What is dissolution?

Dissolution, known by the other term ‘striking off’, occurs when a company is struck off from Companies House register. The legal process permanently shuts a limited company by removing its name from the official register held at Companies House.

Once the name is removed, the company no longer exists and is permanently closed in perpetuity.

What are the pros of dissolution?

The advantages of dissolving your company are simple:

1. Low costs

It only costs £10 to file for dissolution with Companies House. That’s because the burden is not on the agency itself but on you, as the director, to make sure you qualify for the legalities for dissolution.

2. No need for legal representation

You do not technically require legal representation to dissolve your company. However, it is highly recommended you take professional advice to make sure you file the paperwork correctly.

3. Relatively straightforward

The process is relatively straightforward. You fill out the form, have the other company Directors sign it, and submit it to Companies House.

4. Quick process

Dissolution happens quickly. Your creditors, if you have any, have three months to file any objections. If there are none, your company ceases to exist after that point.

What are the cons of dissolution?

Dissolution seems like a simple process, and Companies House has made it simple to file. However, you must meet several criteria and there may be some issues that arise with the filing:

1. Creditors, staff, and other directors can easily object if they have valid concerns

You must have the trust of everyone involved in a dissolution filing. Other company Directors must sign off.

If any staff have valid objections, they can notify Companies House. Staff can only make claims to the Redundancy Payments office for unpaid wages, notice pay, holiday pay and redundancy if a company is closed using an insolvent process. When a company is dissolved staff must have received their full entitlement from the company, before dissolution.

Creditors can also object, if they are still owe money too. Dissolution is meant to be easier than any insolvency process, so you need to understand the criteria before filing.

2. You must understand the criteria

You need to know the criteria for filing for dissolution, including the following:

  • Not traded or selling off of stock in the last three months
  • Not changed the company names in the last three months
  • Not Received a winding up petition
  • Not currently in a scheme of agreements with creditors such as a company voluntary arrangement.

3. The business must be debt free

Your business must be 100% free from debt. You cannot owe a single penny to any creditor. If you do, creditors can file an objection with Companies House within three months to prevent the dissolution.

4. Creditors can revive the company for up to six years following its dissolution to continue to try to collect debts

Even after the dissolution is struck off in Companies House, creditors can still revive the company within six years of the filing. That legal manoeuvre is more involved than objecting to the dissolution before it takes place.

However, you probably don’t want to deal with the ramifications of attempting to dissolve a company without being debt-free. That’s why you must make absolutely certain this is the right choice for you.

5. The Company can be restored

An aggrieved creditors can make and application to restore a company for up to 20 years to then elect to appoint a liquidators to ensure the actions of the directors are investigated fully.

If you are found to have misused the process you can be held liable for a misfeasance and be made personally liable

You cannot use dissolution to get out of paying debts. That process would have to be an insolvency process and will require the assistance of and insolvency practitioner.

6. You could be prosecuted

If you do dissolve a company to try to get out of debts and Companies House is made aware of it, you could be prosecuted, fined, and put in jail. You do not want that whatsoever.

An insolvency practitioner can help

If you’re weighing up the pros and cons to dissolution and are considering it for your business, an insolvency practitioner can discuss your options ahead of filing with Companies House.

Yes, the process is simple. But if there is even one problem on the form you need to file with Companies House, you have a larger problem that may not have an easy remedy.

Talk to McAlister & Co. today for more information. We can help.

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