New winding up rules add extra burden for small business

Chartered accountants and business advisers Johnston Carmichael have warned that new regulatory changes to the process of winding up companies being implemented from next month will have a detrimental impact on many businesses and will likely increase the cost of the process.

The removal of an existing concession which currently allows companies to be dissolved with minimal fuss is to be replaced by the Extra-Statutory Concession (ESC) C16, enacted into statute on 1 Mar. A key aspect of the change is that companies which are in the process of winding up can only claim capital distributions on a maximum of £25,000 in remaining cash or assets. A firm will now need to go through Members Voluntary Liquidation (MVL) – involving the significantly higher fees of an insolvency practitioner - to obtain capital treatment on remaining assets over the £25K threshold.   

Donald McNaught, Business Recovery & Insolvency Director at Johnston Carmichael said:

“Company directors and their advisers need to be aware that the forthcoming changes in HMRC concessions could impose significant costs on any business that is winding up. A process which now tends to cost hundreds of pounds could soon cost several thousand. Instead of simply commissioning an accountant and applying to HMRC for concessions, company directors with remaining assets of over £25,000 will now need to go down the much costlier route of appointing an insolvency practitioner to initiate an MVL.

“While an MVL can be initiated with great speed and immediately following the sale of business or disposal of assets, it can be hugely cost prohibitive, especially for small companies as it will increase winding up costs tenfold in many cases.

“We would advise directors and shareholders of any company which is facing the prospect of winding up its business in the near to medium future to be aware of these changes and seek professional advice on how to best mitigate their potential impact.”