October 29th, 2012 / Insight posted in

Cut the cost of closing your firm

MB writes: I am a director of a small, family company that sold its trade some years ago and has been paying dividends to the family shareholders ever since. The plan was to distribute the reserves and then get the firm struck off. I read recently that the Treasury Solicitor has changed its rules on the share capital of companies wishing to be struck off. What has changed and will this hinder our plans?

You are right in that the Treasury Solicitor’s Department withdrew its BVC17 guidelines from October 14, 2011, writes Chris Lane, a partner at Kingston Smith LLP. These guidelines stated that if a company had applied to take advantage of HM Revenue & Customs’ (HMRC) concession C16, and the amount of share capital involved was less than £4,000, it would not seek to reclaim the share capital as Bona Vacantia — assets belonging to the crown.

The reason this concession is no longer considered necessary by the Treasury Solicitor is that it is now much easier to formally reduce the share capital of a company under the Companies Act 2006. The implication is that the Treasury Solicitor will pursue companies with share capital of less than £4,000.

It is therefore advisable for companies to go through the formal procedures in the 2006 act and reduce their share capital to a nominal amount, before applying for the firm to be struck off. This involves a special resolution and a declaration of solvency by the board.

HMRC is also planning a statutory provision to replace its concession C16, which allows companies to distribute accumulated reserves as a capital dividend before being struck off. This may be included in the draft finance bill 2012.