1. The attached Guidelines give you information you need about distributing a company's share capital to its members prior to its dissolution. Please read the Guidelines carefully.
2. We are not permitted to give you any legal advice, so you should consider instructing your own solicitor if you have not already done so.
3. If you employ a solicitor or an accountant to act on your behalf, please let us know their name, address, and reference as soon as possible, and show them a copy of the Guidelines.
4. This is a simple guide and cannot cover every circumstance. Each case will be dealt with on its own merits, and the right to vary or depart from the attached Guidelines at any time without notice is expressly reserved.
Background
1. When a company that was registered under the Companies Acts is dissolved, all its property and rights in England and Wales (but not its liabilities) pass to the Crown as bona vacantia (meaning 'ownerless property' ) because of Section 654 of the Companies Act 1985 or Section 1012 of the Companies Act 2006, depending on when the company was dissolved.
2. If the company's last registered office was in Engalnd or Wales (other than in the Duchies of Cornwall or Lancaster) we are nominated by the Crown to deal with its property and rights.
What we can do for you
3. Bona vacantia property belongs to the Crown, and the Crown is not obliged to deal with them in any particular way. Normally they would be disclaimed (i.e. the Crown gives up its interest) or sold, and the proceeds of sale transferred to the Exchequer to be dealt with in the same way as money raised by general taxation.
Dissolved Companies
4. Companies are usually formed by a number of individuals who wish collectively to form a business association. Once formed, a company is in law regarded as an artificial legal 'person' with rights and obligations distinct and separate from those of the persons who formed the company. The majority of such companies are now created and formed under the Companies Act 2006, or under earlier legislation now superseded by that Act. A company can own in its own name any property, money, or other assets that a person can own. Unlike a person, a company cannot die, but its existence can be terminated either by its name being struck off the Companies' Register, or by being wound up by a liquidator and dissolved.
Dissolved Companies Assets
5. Before a company is dissolved, the member should ensure that assets owned by the company are dealt with prior to dissolution and transferred out of the company's ownership. If this is not done, assets owned by the company at the date of dissolution will pass into the ownership of the Crown. Such assets are then known as bona vacantia which is a Latin expression meaning ownerless goods.
How it Works
6. When shares are created by a company they are said to be 'issued' by the company to the members who have contracted to buy them. Once the shares have been issued, they form part of the 'capital' of the company, in the technical sense to mean the liability that the company has to its shareholders. The 'share capital' is therefore a liability of the company, since a company will eventually have to repay the shareholder the amount of their investment. Usually this only happens when a company is wound up. For the protection of the creditors and other people dealing with the company, the share capital has to be 'maintained' by the company. This does not mean that the money invested by the shareholders has to be deposited, or set aside as a separate fund to guarantee the company's creditors. It only means that the fund must not, normally, be returned to the shareholders whilst the company is a going concern. The money is usually spent by the company to get its business going, and used to buy stock, rent or buy premises, pay wages, invest in plant and machinery, or pay the general expenses involved in setting up and running a business.
Maintenance of Share Capital
7. One consequence of the rule that share capital has to be 'maintained' is that dividends paid to the shareholders may only be paid out of the company's profits. Another consequence is that capital invested by the shareholders cannot be returned to them except:
7.1 The Companies Acts deals with the cases where, with the approval of the Court, capital can be returned to the shareholders.
7.2 when the company is put into liquidation, or
7.3 where the company redeems or purchases its own shares.
Unauthorised Distribution
8. If there is an unauthorised return of the share capital to the members, the company has a right to recover that money from its members. That right of recovery from the members is a 'right' for the purposes of Section 654 of the Companies Act 1985, which would pass to the Crown as bona vacantia when the company is dissolved. If there was an unauthorised distribution of share capital to the members prior to dissolution, therefore, the Crown would be entitled to recover that distribution from the members. The only legal way to avoid this 'right' passing to the Crown as bona vacantia is to put the company into formal liquidation prior to dissolution, or to legally reduce the amount of the share capital prior to the company dissolution.
Permitted Distributions
9. It has been recognised that it would be unreasonable for the Treasury Solicitor to expect that a company is put into formal liquidation when that would be uneconomic, especially bearing in mind that HM Revenue and Customs Extra Statutory Concession C16 permits a distribution for tax purposes without the company having to incur the costs of a formal liquidation. It is therefore been agreed with HM Treasury that if:
9.1 a company has been struck off under Section 652A of the Companies Act 1985 or Section 1003 of the Companies Act 2006, and
9.2 the shareholders have taken advantage of the extra statutory concession C16, and
9.3 the amount of the distribution is £4,000 or less, then
as a concession the Treasury Solicitor will waive the Crown's right to any funds, which were distributed to the former members prior to dissolution.
Reduction of share capital under section 641 of the Companies Act 2006
10. From 1 October 2009 Section 641 of the Companies Act 2006 will be implemented in full. This provides companies with a further legitimate way of reducing their share capital. Section 641(a) gives private companies the option of reducing the amount of their share capital by special resolution supported by a solvency statement made by the directors.
If a company takes advantage of this new provision then the same principles explained above apply. If the reduction of share capital results in unauthorised distributions of £4000 or less then the bona vacantia right will be waived. If the unauthorised distribution is more than £4000 then the bona vacantia interest will remain.
Notes
11. In these Guidelines the reference to 'share capital' has exactly the same meaning as that expression has in Part 17 , Chapter 1 of the Companies Act 2006.
12. The Treasury Solicitor cannot give advice on the content of the solvency statement required by section 643 of the Companies Act 2006. The statement must be produced by the company for its members and accordingly you must seek your own professional advice in relation to complying with the provisions of the Act.
13. Share capital and what constitutes share capital can be a complex matter. The Treasury Solicitor cannot provide advice as to what constitutes share capital or what distribution can be legally made. This is a matter for the individual or company and their professional advisers to ascertain.
14. The reason for the limit of £4,000 is that we believe this is the average cost of putting a company into liquidation. No higher sum would be acceptable, because of the risk to the public purse if a creditor should subsequently come forward, and try to recover from the Crown the amount of the distribution the Treasury Solicitor had authorised.
15. The company's accountants or other financial advisors can therefore safely distribute sums of up to £4,000 to the former members, safe in the knowledge that we will not attempt to recover any of that distribution from the members.
16. If however the amount of the share capital exceeds £4,000, the company should be put into liquidation prior to dissolution, or steps taken to legally reduce the amount of the share capital to below £4,000 prior to the dissolution of the company.
17. Section 654 of the Companies Act 1985 and Section 1012 of the 2006 Act only applies to property and rights that were owned by the company 'at the date of dissolution'. The Treasury Solicitor generally has no interest or jurisdiction in respect of any distributions or other matters relating to the company that were made or dealt with prior to the company's dissolution, unless the distribution created a 'right' in favour of the company to demand the return of the distribution.
18. The fundamental question, therefore, is always whether or not the company had any right to demand the return of all or any part of the distribution that had been paid to the members prior to dissolution. If it did have such a right, that is a right that would have passed to the Crown as bona vacantia. In theory, therefore, the Crown could recover that sum once the company had been struck off, so long as it does not come within the ambit of our concession.
19. Whether or not the Crown would actually take legal proceedings against the former members for the return of the distribution depends upon a number of matters. Firstly, the Treasury Solicitor is not notified by Companies House when a company is dissolved, and we have no information as to what sums (if any) were distributed to the members prior to dissolution. The Treasury Solicitor will not therefore be in a position to take any action until somebody draws the matter to our attention. Secondly, the Crown will not embark upon speculative or pointless proceedings, so we would have to be sure that there was a good chance of the proceedings being successful, both legally and financially. Before taking legal proceedings we would therefore take advice from specialist Counsel upon whether the distribution in question was lawful. If the company could be restored to the register, legal proceedings would probably be pointless, because the members could frustrate any proceedings by the Crown, by restoring the company.
20. As to what sums can be lawfully distributed to the members out of the company's profits as dividends, you should consult the provisions contained in Part 23 of the Companies Act 2006, which lays down clear rules as to what payments can be made as dividends to the members.
21. We cannot give advice upon specific cases. You should take your own independent specialist advice if there are any doubts as to what sums can be distributed to the members prior to dissolution.
Further Information
You can find copies of all the documents referred to in these guidelines, and more information about bona vacantia on this website.
Please note
The purpose of these guidelines is to set out our approach to the property and rights that pass to the Crown as bona vacantia. This document is not an Act of Parliament and it should not be read or interpreted like one. It is intended to provide general guidance only, and it is not a statement of policy.
We will consider each matter on its facts and decide each case on its merits. Our decisions will be based on all the information available to us and we will tell applicants about our decisions as soon as possible. When dealing with any property and rights that pass to the Crown, we act fairly and impartially but in such a way as to not prejudice the interests of the Crown. We aim to be fair in all our dealings and not to take an unfair advantage or to favour one party over another.
This information is available in large print, audio tape and braille formats.
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These Guidelines are subject to Crown Copyright and must not be altered, amended, deleted or added to.
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