Company Strike Off
The striking off or dissolution of companies is changing. There are two points that need to be borne in mind: one the ESC 16 concession and the other the Bona Vacantia concession.
a) ESC 16
The concession in ESC 16 is likely to be replaced by a statutory instrument (“SI”) for distributions made from companies on or after 1st March 2012. The SI will mean that on dissolution of a company only the first £25,000 of the amount paid out will be subject to capital gains tax; if capital is greater than £25,000 all is subject to income tax.
If the income tax liability is going to exceed the capital gains liability then you should consider a formal members voluntary liquidation (MVL) which ensures capital gains tax is payable on the full amount paid out, not just on the first £25,000.
Remember entrepreneurs’ relief could also be available which would reduce the capital gains liability to 10% of the gain and would make the capital gains “option” orMVLmuch more attractive. It should be noted that if the shareholder is eligible for entrepreneur’s relief then capital gains tax is likely to be favourable in almost all situations. Distributions can be made over multiple tax years further increasing the tax relief available.
b) Bona Vacantia
The ESC concession has resulted due to a technical problem that if a company returns its share capital to the shareholders, without a formal winding up, this is technically, in law, an unauthorised distribution and those assets can be recovered by the Crown under the doctrine of bona vacantia. To get round the problem it was then agreed that HM Treasury would put in place another concession under which it would not pursue its right to recover the ‘unauthorised distribution’ as long as the amount paid out to the shareholders was not more than £4,000 which was at the time understood by HM Treasury to be the cost of a formal liquidation.
This concession was removed in October 2011.
So where does that leave companies wishing to distribute their reserves or groups wishing to restructure. The answer is a formal liquidation or MVL.
There are of course other benefits of going the formal liquidation route for example assets can be distributed in specie eg book debts, shares in subsidiaries etc. Shareholders can rest assured the distribution will not be overturned and they are no longer responsible for the governance of the company.