From ashes to assets? A commentary on company restoration

Each year, thousands of limited companies are removed from the list of companies maintained by Companies House. These companies have been dissolved; they have effectively been closed and legally no longer exist. If they hold any assets when this happens, control over – and any value in – those assets may be lost. Whilst dissolution may often result from a conscious decision by a director, it is not uncommon for a company to be struck off the register automatically due to directors’ mistakes. In some circumstances, it may be necessary or desirable to restore the company to the register, whether to recover overlooked assets which would otherwise be lost to the Crown, or to wind it up formally; dissolution is not always the end of a company’s journey, and it is not in any event the end of its directors’ liabilities.

When might a company be dissolved?

Voluntary dissolution

Companies can be dissolved voluntarily if the directors and shareholders decide that they no longer want the company to exist – perhaps as part of a restructuring, because they are retiring and no-one is willing to take over the company or because it was not as successful as they had hoped. By dissolving the company, directors and shareholders are no longer obliged to trade it or pay for its maintenance and are free to move on to (hopefully) greener pastures. A company may also be voluntarily dissolved as a method to avoid penalty charges for filing accounts late if a filing deadline has been missed.

Directors should always consider the assets their company has before taking active steps to dissolve.

It is a commonly held misconception that dissolving a company brings a director’s responsibilities for that company to an end. Legally, directors who have breached their duties to the company can still be the subject of investigation with a view to disqualification and/or compensation orders, so if a company still owes or potentially owes any creditor any money (especially HM Revenue & Customs), dissolution will rarely be the right choice, at least not if the aim is to draw a line under a director’s possible liabilities. If a director does choose to try to dissolve a company which has creditors, there is a very strong chance one of them will object to the dissolution anyway.

Involuntary dissolution

Involuntary dissolution is when a company is forcibly dissolved by the Registrar of Companies (Companies House) or because its striking off has been ordered by the court. This could happen if a company:

• has failed to file its accounts or confirmation statement in time;
• has no appointed directors or registered office; or
• has fallen foul of other legal requirements.

It is not uncommon for a director to accidentally have their company dissolved because of an easily avoidable mistake, such as forgetting to file its accounts on time.

The possibility of involuntary dissolution serves as a stark reminder for directors to ensure that they keep on top of their company obligations pursuant to their duties as directors (see our other blog linked here), or they may find themselves faced with navigating the company restoration process and/or having to compensate shareholders or creditors if they suffer loss as a result of a dissolution which happens due to neglect.

Restrictions upon dissolution

The ability to dissolve a company is, however, subject to a few exceptions, and if an application for voluntary dissolution is made under these circumstances, there are likely to be civil and/or criminal sanctions (including a fine and/or imprisonment). These exceptions are summarised as follows:

• where a company is subject to a winding up petition;
• where an application has been made for a creditor agreement, or there is already a creditor agreement in place (such as a company voluntary arrangement, scheme of arrangement or Part 26A restructuring plan application);
• where there is an interim moratorium in place because the company might enter into administration;
• where a receiver has been appointed over a company’s assets;
• where the company’s estate is being administered by a judicial factor; or
• where the company has traded or carried on business, sold stock, or changed name within the preceding three months.

In addition to the above points, a company cannot be dissolved by its directors and/or shareholders if it is already in an insolvency procedure such as voluntary/compulsory liquidation or administration, as this must be done via the company’s insolvency officeholder.

If you are unsure as to whether dissolution is a viable option for your company, or if you have concerns around your company’s risk of being dissolved automatically, our Corporate Restructuring and Insolvency Team would be pleased to assist.

When should a company be restored? (and what happens to remaining assets if a company is dissolved?)

A company can be restored upon an application by directors, shareholders, insolvency officeholders, and/or other stakeholders.

Unfortunately, company assets (including properties, goods, chattels and intangibles such as trademarks and intellectual property rights) sometimes remain wrapped up in a dissolved company, especially if a director or shareholder unintentionally had their company struck off the register for a missed filing deadline, or where a director may have voluntarily dissolved their company themselves, forgetting about an asset such as a registered property which had not been validly transferred, a bank account or trademark registered years ago. Any assets which remain wrapped up in a dissolved company are automatically deemed to be Bona Vacantia (meaning ‘vacant goods’) i.e. to the Crown which is administered by the Bona Vacantia Division, as these are considered ‘ownerless’ assets under the laws of England and Wales. Directors, shareholders and stakeholders are unable to touch these assets whilst they are Bona Vacantia. Restoring a company to the register would, subject to any dealings by the Crown in the meantime and any conditions imposed by the court on restoration, allow those remaining assets to be put back in the company so they could be managed and distributed properly/as originally intended.

We have also seen directors’ and/or shareholders’ circumstances change, especially in today’s ever-evolving economy, and some directors may simply want to have a second run at trading their dissolved company if they consider the business still viable. Restoration presents an appealing option here, as there is no need to start from scratch, although we strongly suggest seeking advice in the first instance.

Stakeholders (such as creditors, any person or entity with a legal claim against the company, trustees of former employees’ pension funds, any person or entity with an interest in property or assets of the company) are also able in principle to apply to restore a company for various reasons, such as to recover assets in which they have an interest, and to issue a winding up petition or legal proceedings against a company and its former directors.

Ultimately, when a company is restored to the register, it is considered for most purposes as if it had continued in existence and had never been dissolved at all.

If you are a director/shareholder/stakeholder who has found yourself in this position and are looking to restore a company, we recommend that you seek early advice from an accountant and/or specialist solicitor before taking steps to restore the company yourself. However, the following paragraphs offer a thumbnail sketch of the process to assist with understanding.

How is a company restored?

There are two methods in which a company may be restored: administrative restoration or by obtaining a court order. These processes are designed for most people to be able to follow the government’s guidance and complete themselves, but we recommend seeking legal advice in the first instance to ascertain if there are any complicating factors which may go beyond the guidance pages (such as if there are properties tied up in the dissolved company, in which case HM Land Registry may need to be involved, if there are any trademarks, in which case the Intellectual Property Office will need to be involved, if you believe assets have or may have been transferred out of the company before or after dissolution, or if you are looking to make a claim against the subsequently restored company). Whilst the processes may be straightforward, most stakeholders will not wish to find they have restored a company where there was no benefit to doing so, where they could have followed a more appropriate route to redress (e.g. by proceeding directly against the company’s insurers) or where the costs associated with restoration and (if applicable) re-dissolution of the company exceed the value of the net assets likely to be restored.

Administrative restoration

Turning first to administrative restoration, whilst this does not involve any court intervention, this is only an option if the following conditions are met:

• the applicant was a director or shareholder at the time the company was dissolved;
• the company was involuntarily struck off the register and dissolved by the Registrar of Companies within the last 6 years; and
• the company was trading at the time it was dissolved.

As part of making the administrative restoration application, you would need to file any outstanding documents (e.g. accounts or confirmation statements), pay any filing fees or penalty payments, and obtain a waiver letter from the Bona Vacantia Division.
In our experience, administrative restoration takes approximately 1 to 2 months, assuming it is a straightforward process and other regulatory bodies are not required. If the application is successful, the Registrar will confirm that the company has been successfully restored and you would be able to continue trading as if it had not been dissolved in the first place.

Court application

If you are not eligible to apply for administrative restoration, you would need to obtain a court order instead. The scope of eligibility is wider for a court restoration, as any person who the court deems to have a sufficient interest in the matter may be eligible – for instance, if you are a creditor seeking to recover your debts from a dissolved company, if you want to bring legal proceedings against the company, or if you have an interest in property which is still wrapped up in the dissolved company. It is worth mentioning that if you are a director who voluntarily dissolved a company and changed your mind (or realised there are assets remaining with the dissolved company), you must seek restoration by court application.

As a general rule, for companies dissolved voluntarily or struck off involuntarily by the Registrar of Companies or by a liquidator or administrator, restoration applications should be made within 6 years following dissolution.

In our experience, the court application route takes a lot longer than administrative restoration – if all goes to plan, it should take approximately 4 to 6 months (though we have seen it take longer than this due to court delays and/or administrative errors). If one of the reasons for the restoration application is to gain access to a bank account solely or jointly held by the company, you should expect to need to liaise closely with the bank, and that some banks will insist on fully closing accounts and paying all funds over to the Bona Vacantia Division, even if they are on notice that a restoration application is pending. The paperwork required on restoration to actually access such monies can be surprisingly daunting, and you will likely need the cooperation of everyone who was a director at the date of dissolution.

If a court order is ultimately granted, the company rises from the ashes and, with consent from the Bona Vacantia Division, regains control over its former assets once again, whilst the former directors and/or sometimes liquidators / administrators are also restored to their former roles and duties, hence they will need to have notice of the application.

Creditors: make sure you are using the right procedure

Creditors should seek early advice prior to taking steps to make a court application to restore a company, as there may be other methods more suitable to recover a debt (for instance, in certain circumstances, pursuing a director personally, or the company’s insurers directly). You should be careful to ensure that you are using the right procedure and not spending costs unnecessarily if you have alternative options, including petitioning the court for a ‘double-barrelled’ order for restoration and compulsory winding up if what you need is to try to reverse some historic transactions or to open up a detailed investigation into the history of the company.

Key message to directors and shareholders

All directors must be mindful of their duties and obligations (see our separate blog linked above), and ensure they diarise company filing deadlines and liaise frequently with their company accountant and/or instruct a company secretarial service to ensure these are not missed inadvertently – please get in touch if you would like to discuss our company secretarial service offering.

If you have decided that it is time to dissolve your company, it is vital that you check carefully the company’s asset position first to ensure you have not left any assets wrapped up in the company upon dissolution.

If you would like to discuss any aspect company dissolution and restoration, please do not hesitate to get in touch with Lucy Andrews, Alicia Gardner, Mike Pavitt or any other member of our Corporate Restructuring & Insolvency team – we would be pleased to assist you.