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The Treasury Solicitor’s office has withdrawn guidelines designed to allow share capital of up to £4,000 to be paid out to shareholders as a result of a company being struck off, and not to be treated as the property of the crown under the bona vacantia or ownerless property rules.
Currently, a business may be struck off without the need for a formal liquidation under the Companies Act 2006, provided certain conditions are met and procedures are followed. This can provide a low cost and relatively straightforward means of dissolving a company without appointing a liquidator.
Following the withdrawal of the guidelines, companies can still be struck off without appointing a liquidator, but they must first reduce their share capital to ensure payment of funds to the shareholders, rather than to the crown.
An easier method of reducing a private company’s share capital was introduced in the Companies Act 2006. Generally, the repayment of share capital will be treated as a capital receipt in the hands of the shareholders.
The Treasury is also consulting on withdrawing HMRC extra-statutory concession (ESC) C16, which can allow dividends paid in anticipation of striking-off to be treated as capital gains tax proceeds instead of income. This can reduce the effective rate of tax paid, especially where the 10% entrepreneurs’ relief rate is available instead of income tax of up to 36.1% of the net distribution.
The legislation, as currently drafted, would tighten the conditions to be met and would limit capital treatment to situations in which total assets to be distributed are £4,000 or less. Companies with greater total assets will have to appoint a liquidator.
Mick Sanders, corporate recovery principal at MacIntyre Hudson, said it was still possible to secure the capital treatment for shareholders, but he suggested that ‘companies with significant assets or a commercial risk of claims against the company or its directors may be better advised to consider a formal liquidation, now and in future’.
Trish Sankey, senior manager at Baker Tilly REVAS, expressed dismay at the withdrawal of the guidelines, and said, ‘Although, technically, unauthorised capital distributions have always been unlawful under the Companies Acts, shareholders in companies with share capital and capital reserves of less than £4,000 in aggregate could previously informally dissolve the company confident that they would not be pursued by the Treasury Solicitor.
‘Removal of this concession means that now the shareholders of even the smallest companies, which are wound up by distributing reserves to below the amount of the issued share capital and capital reserves may be pursued personally to make good those monies which are technically forfeit to the Duchies of Cornwall or Lancaster – in effect to the government.’
