Striking off without a liquidation: Time is running out...

From 14 October, the Treasury Solicitor (the Scottish equivalent being the QLTR) has revoked their concession to ignore strike offs where the value of the share capital was less than £4,000.  This means that the bona vacantia rules will apply to any amounts of share capital paid out to shareholders when a company is struck off.

This change is happening at the same time as the proposed statutory enactment of ESC C16 which will change the tax position on payments to shareholders on an informal winding up.  When the legislation is introduced it is proposed that any distributions of share capital in excess of £4,000 will be treated as income and not capital unless a formal liquidation takes place.

The Treasury Solicitor’s change of position has been brought about by the Companies Act 2006 whereby it is much easier for companies to reduce their share capital.

A company will therefore have two options; 1) reduce share capital and then strike off or 2) initiate a liquidation process to effect the distribution.

The striking off procedure does have certain restrictions however:

• It does not absolve the directors from liability or prevent the court from winding up the company
• An application cannot be made if, at any time during the previous three months, the company has:
• Changed its name
• Traded or otherwise carried on business
• Made a disposal for value of property or rights that, immediately before ceasing to trade or otherwise carry on business, it held for the purpose of disposal for gain in the normal course of trading or otherwise carrying on business, or
• Engaged in any other activity, except one which is necessary or expedient for making the application or concluding the affairs of the company, necessary to comply with a statutory requirement or as specified by the Secretary of State.

An MVL can be initiated with great speed and immediately following the sale of business or disposal of assets. Of course, the MVL process can also incorporate these itself by way of a distribution in specie

Johnston Carmichael is one of the leading providers of MVL’s in Scotland and has significant expertise in the use of the process as part of a solvent restructuring through the use of s110 of the Insolvency Act 1986.  In house tax experts or, if applicable, the client’s own tax advisers will work closely with our Insolvency Practitioners to achieve the most efficient way of distributing assets to shareholders.

If you would like to discuss any point raised in this article further, please get in touch with your usual Johnston Carmichael contact or a member of our Business Recovery and Insolvency team listed below.

Edinburgh
Matt Henderson, Business Recovery and Insolvency Partner. 0131 220 2203. matt.henderson@jcca.co.uk

Aberdeen
Gordon MacLure, Business Recovery and Insolvency Partner. 01224 212222. gordon.maclure@jcca.co.uk

Glasgow
Donald McNaught, Director, Business Recovery and Insolvency. 0141 222 5800. donald.mcnaught@jcca.co.uk