Dissolution – just a very low cost Liquidation?
Dissolution is an informal approach to closing a Limited company. This makes it very adaptable when compared to Voluntary Liquidation, it is also a lot cheaper – in most cases there are complications if it is not handled correctly.
How we Dissolve a company has been developed over the past 5 years to ensure your risk of complications is minimised.
Compared to Liquidation, Dissolution is:
- Cheaper (Even with an agent)
- Less red tape
- It can be complicated
- More work on your part (if you’re doing it yourself)
- Slower (without any issues, it still takes Companies House 3 months to Dissolve a company)
It may interest you to know that Liquidation is actually the process before a Liquidator Dissolves a company – every company that has ever closed ultimately has been dissolved!
Is it right for you?
Dissolution isn’t right for everyone, let’s be clear about that, but for over 75% of the enquiries we see, Dissolution is a much better solution for them than Liquidation.
As a rule of thumb, Dissolution is preferable to Voluntary Liquidation when:
- You have low levels of debts (the lower the better – but as a guide under £50,000)
- There is no court action active against your company (winding up petitions, bailiffs etc)
- You will actively seek to stop trading your current company
- You have no legal charges against your company (debentures – if in doubt you can give us a call and we will let you know)
- You have paid your staff up to date (Dissolution offers no standard redundancy payment mechanism as Liquidation does)
For most companies, these all apply, hence why more and more Directors are choosing Dissolution over Liquidation.
Why does Dissolution work?
OK, let’s go through a few figures to give you an example.
Meet Jim. Jim has a garage in Birmingham, he owes out £25,000, which he cannot pay. He does have around £6,000 in assets, which can be sold.
If Jim were to Liquidate the company, the assets would end up paying Liquidators fees, resulting in his creditors receiving £0.
If Jim decides to Dissolve the company, his creditors receive £5,890 (£6,000 less the dissolution filing fee).
If you were a creditor, which one would you prefer?
It really is that simple. For many companies Voluntary Liquidation is detrimental to creditors, the only person who gains is the Liquidator. Creditors rarely get a dividend.
You probably don’t know this – many of the Insolvency Practitioners don’t seem to be aware of it (or at least wish to ignore it) but since April this year (2013) the tax man has new internal guidance on how to approach matters like Dissolution. They are now a lot more supportive of it than before, purely because they get more money this way.
This is a win-win situation for creditors and for you – creditors get a better return and it’s going to cost you substantially less than a Voluntary Liquidation.
Life after dissolution
Unlike Liquidation, Dissolution is not an Insolvency action. This means that, as far as official records are concerned, you closed a company that was no longer needed. No awkward conversations with the Bank Manager about your last business.
As it is informal, there are no statuary investigations, so no possibility of complaint about your activity as a Director (Liquidators call them D-reports and it is these that lead to bans from taking office).
If there are any creditors you have not informed (maybe you just forgot about them) then they can apply to have the company re-listed. This is a High Court action, and tends to be expensive. Unless they have good reason to do it, creditors will not bother.