Dormant companies

Many groups of companies include some that are dormant. Formed or acquired as part of the natural business development, these companies no longer have a useful role to play in the group's activities. Dormant companies can incur costs with no real benefit.

Should these companies be struck off? Yes

Company directors can apply to have dormant companies struck off.

To make such an application all the outstanding issues must be investigated including identifying and notifying both actual and potential creditors. Until this has been done assets representing the nominal value of the company's share capital cannot lawfully be distributed.

You must be sure that liabilities have not been overlooked. These could be product liabilities, employee liabilities, revenue liabilities and outstanding annual returns.

The potential dangers
If striking off is carried out without identifying and settling all the outstanding issues, creditors can apply to have companies put back on the Companies Register at any time up to twenty years following dissolution. The emergence of any liability can lead to this happening. In this situation, any previous distribution of assets may have to be reversed.

Annual returns
Companies may be struck off the Companies Register for non-filing of annual returns. The directors in this instance are liable to prosecution by the Director of Corporate Enforcement. A Members’ Voluntary Liquidation (MVL) avoids the requirement to file outstanding returns and ensures the company is dissolved legally.

Advantages of the MVL
Many of the potential dangers associated with striking off can be overcome by opting for an MVL. The outstanding issues surrounding the dormant company still need to be investigated and resolved but certain key advantages emerge. In particular:

  • the nominal share capital of the company can lawfully be distributed, provided the company is solvent or can be made so;
  • except in exceptional circumstances, the company can only be put back on the Register, following dissolution, within a two year period; and 
  • it can be advantageous to crystallise a capital loss or gain by liquidating the company if there are other capital issues arising in the group.