If you own a company, there may come a time when you no longer need it, for example if you’ve stopped trading, have restructured your group, or the reason you set it up no longer exists.
In these situations, the Companies Act 2006 provides a relatively quick, easy and inexpensive ‘voluntary strike off’ process, where the directors can apply for the company to be removed from the register at Companies House. Alternatively, a company may be struck off by Companies House itself for failure to comply with filing rules. Or a company may be compulsorily liquidated or ‘wound-up’ at the request of a creditor (someone owed money by the company) or by a member such as a shareholder. In all cases, the company is effectively dissolved and ceases to exist.
Since the outbreak of COVID-19, the government has introduced temporary changes to the rules governing strike off to enable companies time to recover their businesses. These new rules include:
- Where a company has applied to be struck off the register, the strike off process will be suspended after a notice of strike off has been published so that creditors and others affected by the strike off can have sufficient time to object, and Companies House will also suspend its strike off procedure for late or missing filings. These new rules won’t apply to insolvent companies
- Where late filings have been caused by COVID-19, Companies House will allow further time and support including payment plans where appropriate. In addition, companies can apply for a three-month extension to file their annual accounts.
So, what happens to assets when a company is dissolved?
Here we’ll be covering the different aspects of what happens to assets when a company is dissolved, including:
- What counts as an asset in a dissolved company?
- What happens to the assets of a dissolved company?
- What happens to land owned by a dissolved company?
- How do you buy assets from a dissolved company?
- What happens to the liabilities and debts of a dissolved company?
- What does recent case law say about land owned by a dissolved company?
- What happens to shares held by a dissolved company?
- What happens to intellectual property held by a dissolved company?
- A dissolved company owes me money – what can be done?
What counts as an asset in a dissolved company?
Assets include tangible property such as property or cash and intangible assets like intellectual property, shares and contractual rights.
What happens to the assets of a dissolved company?
When a company is struck off, it ceases to be a registered company and no longer exists as a legal entity. Any property it owns passes to the Crown. This is known as ‘bona vacantia’. For this reason, if the strike off is voluntary the directors must make sure that any property it owns is transferred out of the company before it is wound-up. If the strike off process has not been voluntary, once a winding-up order is made the Official Receiver or a nominated liquidator will be appointed, the company will cease trading and its assets will be sold so that creditors (those who are owed money by the company) can be paid. Creditors are paid in a strict order of priority.
These are the main ways a company’s assets will become bona vacantia:
- A compulsory strike off for failing to make the necessary filings.
- The company has failed to dispose of its assets before a voluntary strike off process.
- A liquidator has not been able to sell a company asset, or they were not aware of certain company assets that come to light post-liquidation.
- A liquidator disclaims a company’s asset because it is deemed to be ‘onerous’.
When a dissolved company’s assets pass to the Crown as bona vacantia, the Treasury Solicitor may handle these assets (dependent on the location of the dissolved company’s last registered offices in England or Wales). The rules are different if a company’s last registered office and/or the asset were located in Scotland, Northern Ireland, or the Duchies of either Cornwall or Lancaster.
When an asset transfers to the Crown, it will usually sell it for full market value, whether that be to someone previously connected with the company or on the open market.
Alternatively, the Crown may disclaim an asset (give up its interest in it). Leasehold land, or any onerous property or contract will most often be disclaimed, and anyone affected by this disclaimer will be given notice.
Disclaimers can be complex and what happens to the asset in practical terms will depend on the type of asset being disclaimed. It is advisable to seek legal advice from a corporate solicitor if you want further information or are interested in a disclaimed asset.
When a property is claimed, the rights and liabilities of anyone with an interest in it (other than the insolvent party), are affected only insofar as may be necessary to release the insolvent party from its liabilities. For example, if a lease is disclaimed, it has been determined by the courts that a disclaimer only relates to the interests of the insolvent party in the disclaimed property (the company in the lease), and the rights of guarantors and original tenants remain as if the disclaimed lease still exists.
It may be possible for a company to apply to be restored to the register and, if this is successful, the company comes back to life, bona vacantia ceases to exist and the asset belongs to the company once again.
However, if the Crown sells an asset whilst the company is dissolved then the company will not be able to get the asset back. Instead the Crown will pay back the price it received for the asset, less its costs.
What happens to land owned by a dissolved company?
Land owned by a dissolved company will automatically pass to the Crown.
When dealing with land, the Crown often disclaims problematic land or where there is a liability connected with it, such as an obligation to pay rent under a lease. In this case the disclaimed property is treated as never having passed to the Crown and the rights of third parties will continue.
In the case of freehold land that is disclaimed, the disclaimed property is subject to ‘escheat’ – in other words this is vested in a different part of the Crown, the effect of which is that the Crown no longer has any liability over it unless it takes some step to assert ownership.
From a company’s point of view, the effect of Crown disclaimer is that it terminates the rights and interest of the company in the assets. In practical terms, property subject to escheat does not have to be disposed of by the Crown Estate, but if there is an appropriate purchaser (an individual or group of individuals who have an interest in the property) the property will generally be disposed of.
If a company held property on behalf of another person immediately before it was dissolved, the trustee or owner can apply to the court to transfer the property to them rather than to the Crown. The Crown Estate then has the option to oppose that application. It is advisable to take legal advice in respect of this type of application.
How do you buy assets from a dissolved company?
If you want to buy a dissolved company’s assets, this is known as ‘referring’ an asset. To do this, you’ll usually need to contact the Treasury Solicitor at the Bona Vacantia Division (BVD). There are different rules and different information is required for each type of asset you might want to buy. You can access guidance here from the BVD on what you need to provide.
In the case of compulsory liquidation, assets of a company can be bought by contacting the insolvency practitioner whilst the company is in liquidation and before the company is finally dissolved. Often an independent third party will be appointed by the liquidator to value and sell the assets on their behalf, so that they cannot be criticised by creditors for failing to get the best price.
What happens to the liabilities and debts of a dissolved company?
When a company is dissolved, its liabilities are usually extinguished.
If the debt was not secured, the creditor will need to apply to restore the company to the register and bring legal proceedings against the restored company to recover any monies owed to it by the company.
If a debt owed by the company is secured by a valid charge like a mortgage, the Treasury Solicitor will recognise this interest. This means that the security holder will be able to redeem its debt and the Treasury Solicitor will receive any remainder. This will be held for the benefit of other creditors or pending the company being restored to the register.
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What does recent case law say about land owned by a dissolved company?
In Re Five Star Properties Ltd (‘Fivestar’), a property development company was placed in administration whilst it owned freehold land. The land became bona vacantia, but the tenant of the property served a request for a new lease on the Crown. At this point the Crown disclaimed the property and the bank who had provided Fivestar with a loan, which was secured by a legal charge over the property, applied for the company to be restored to the register.
An English court decided that the property of a dissolved company could re-vest in the company when it was restored to the register even though it had been disclaimed by the Crown. In this case, it was decided that freehold and leasehold property should be treated in the same way – as if the property had never been disclaimed by the Crown.
However, in the case of ELB Securities Ltd v Love, a Scottish court held that Crown disclaimer of a leasehold interest ended the dissolved tenant company’s rights in the lease, so that the leasehold interest was not re-vested in the tenant company when it was restored to the register. This conflicted with the decision in the Fivestar case, so there is uncertainty as to which approach would be followed in future English cases where a dissolved company that owns leasehold property is restored to the register.
What happens to shares held by a dissolved company?
The Bona Vacantia division (BVD) of the Government Legal Department deals with the disposal of shares previously owned by a dissolved company, which pass automatically to the Crown when a company is dissolved. It will be the BVD’s decision whether to sell shares for their market value or whether to disclaim the Crown’s interest in them.
It is possible to apply to purchase shares owned by a dissolved company from the BVD, but if the company has been dissolved in the last 12 months, it is likely that the BVD would approach former members, directors or the liquidator of the dissolved company first to check if they intend to restore the company to the Companies Register. This is because the shares would automatically be returned to the company if it is restored. Further, the issuing company are also likely to be approached by the BVD to see if they want to buy the shares back, before its shares are sold to another party.
What happens to intellectual property held by a dissolved company?
Similarly to shares, intellectual property such as copyright, trade marks and patents held by a dissolved company passes bona vacantia and is dealt with by the BVD.
Any party who wishes to buy intellectual property owned by a dissolved company must apply to the BVD advising of the details of the dissolved company, who previously owned it and what the intellectual property is, why they want to buy it, any current or previous disputes relating to it, and if there is anyone else using it.
The BVD will then consider the application, but does not have to sell the intellectual property and cannot offer any guarantees or warranties in respect of the intellectual property. More details of this process can be found in our guide: Buying IP from the Crown.
A dissolved company owes me money – what can be done?
All assets pass to the Crown as soon as a company is dissolved, so ideally, if a company owes you money you should object in writing to Companies House, before the dissolution of a company.
If a company owes you money and has already been dissolved, you may be able to claim money back by getting a court order to restore the company to the register. You would need to complete form N208 and send this to the nearest county court to the former registered address of the dissolved company. You will also need to send the court fee (currently £280) together with a witness statement containing evidence set out in section 4 of the Treasury Solicitors guide to company restoration.
If you are a shareholder or director of a dissolved company, you may be able to restore the company without a court order by applying directly to Companies House (‘administrative restoration’).
If you are successful in your claim, the court will issue an order to restore a company, which you must send to Companies House. Companies House will then restore the company.
In order to actually recover money owed to you, once a company is restored to the register, you will then need to get a court judgment for the amount of money you are owed together with interest and costs, issue a statutory demand or take out a winding up petition (if you are owed £750 or more by the company).
Note that because of the difficulties caused to companies as a result of COVID-19, there was a temporary ban on statutory demands being served on companies between 1st March and 30th June 2020 from being used as a basis of a winding up petition. In addition, creditors will temporarily be prohibited from presenting a winding-up petition against a company unless they reasonably believe that COVID-19 has had no financial effect on the company.