Bona Vacantia: Little Comfort

JIM GREENWOOD investigates the official line with undistributed assets of companies which are struck off.

One of the points discussed in my article 'Death of a Company', published in Taxation, 31 May 2001 at pages 209 to 212 was the possible claim which might be made by the Treasury Solicitor for bona vacantia (i.e. property in no ownership) when a company is struck off voluntarily, with a view to satisfying the terms of the Revenue's Extra-statutory Concession C16. The claim for bona vacantia might arise if certain inter-company debts are written off, or in relation to the company's share capital account which cannot lawfully be paid out as a distribution.

I sent a copy of the article to the Treasury Solicitor's Office for comment, but unfortunately I do not think that the answer received moves matters any further forward. There must be many advisers who assume, since neither the Revenue nor Companies House take the point, that other branches of Government would follow suit. The Treasury Solicitor's department would not say that it would not pursue the unlawful distribution and, in fact, said that unlawful distributions would be bona vacantia.

The Treasury Solicitor made the following points.

Unpublished guidelines

The Treasury Solicitor has internal guidelines relating to the assets of dissolved companies but, as these are subject to change, the Treasury Solicitor does not publish them and prefers to deal with cases on an individual basis.

Crown property

When a company is dissolved, its beneficial property and rights ('assets') vest in the Crown as bona vacantia pursuant to section 654, Companies Act 1985. This includes the benefit of any loan or debt that was owed to the company at the date of dissolution. This form's part of its 'beneficial property and rights' passing to the Crown as bona vacantia. In addition, the right of the company to recover any unlawful distributions will also be a bona vacantia asset, and will vest in the Crown once the company has been struck off.

A form of revenue

The Treasury Solicitor does not think that it is correct to say that bona vacantia provides the Crown with windfall profits. He considers that bona vacantia is one of the ancient hereditary revenues of the Crown, and like all revenues it is tax payable on the dissolution of a company. To that extent, the Treasury Solicitor is therefore a revenue collecting body, performing a similar function to the Inland Revenue or Customs and Excise. In the modern era, the Crown surrenders its right to receive the income from bona vacantia in exchange for the Civil List, but the right to collect bona vacantia remains vested in the Crown.

When a claim may not be pursued

The powers of the Treasury Solicitor, which are set out in the operative parts of a Royal Warrant, are qualified by the expression 'whenever he judges it expedient...'. The Treasury Solicitor is not therefore required, as a matter of strict law, to assert a claim to property that is, or may be, bona vacantia. He would generally do so, but circumstances may arise in which it is proper for him not to assert a claim. For example, where the title to such property is doubtful, or where the costs of asserting title would exceed the value of the asset, the Treasury Solicitor may decide that it is not expedient to assert a claim. As noted in the article, the Treasury Solicitor has a statutory power of disclaimer in section 656, Companies Act 1985. This power is, in practice, only exercised in limited circumstances, namely where the asset is either onerous, of such limited value that it would not be cost effective to attempt to dispose of it, or where the likely costs of disposal are expected to exceed the proceeds of sale.

Solvent debtors

As the benefit of a loan or debt owed to a dissolved company is clearly not an onerous liability, the Treasury Solicitor would not normally agree to disclaim the loan. He would be obliged to enforce the loan against the debtor, provided the cost of those proceedings is not likely to exceed the amount of the damages which are likely to be recovered.

Distribution of sums collected

If a third party voluntarily pays sums of money which it owes to a dissolved company (this is usually a bank, a building society, VAT refunds, tax refunds, or money held by the company's former solicitors), the Treasury Solicitor has been given a discretion by H M Treasury. The Treasury Solicitor would normally deal with cash balances by way of discretionary payments to former members or liquidators of the company.

No compromises

When disposing of any assets that have vested in the Crown as bona vacantia, the Treasury Solicitor is required by H M Treasury to obtain the full value for that asset, particularly if the dissolved company could be restored to the register. The Treasury Solicitor will therefore decline to assign or release a debt without payment of all the principal and interest outstanding, and payment of costs.

No comfort

The foregoing provides little comfort for those hoping to wind up a dormant company with a minimum of fuss.

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