Restore to liquidate – why do some closed companies have to come back to life?
But is there a way that they can come back? And why would a director want to resurrect a closed company anyway?
Administrative restoration is the official term for bringing a dissolved company back into existence and we’ll explain further how they can be returned to life and why directors might want to do this.
- To recommence trading
One reason why a dissolved company could be restored is if the directors believe it may have a profitable future trading again. Maybe the market conditions have changed or they are in a better position to make a success of the venture now than they were previously.
The only limit to restoring a business in this way is it cannot have been dissolved for more than six years.
- To release assets
The six year time limit also applies when directors look to restore a business in order to release and realise an asset.
If a business is struck off or dissolved while still holding assets then they could become the property of the crown after a certain amount of time has elapsed. Also, they could be classed as ownerless or “bona vacantia”.
In either scenario, if this is why a company is being restored then Companies House could temporarily place the business back on the register in order to facilitate the asset transfer or sale.
- To defend claims against the business
Unlike the administrative restoration time limit of six years, there is no such restriction when it comes to pursuing claims against a dissolved business. The company might have to be restored in order for an injury or other legal claim to be lodged against it and subsequently defended.
- To restore to liquidate the business
The final reason to restore a struck off company is to rectify mistakes made during the initial process.
A company can only be struck off if it has no debts or arrears.
Under the imminent Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill – HMRC and the Insolvency Service will be granted retrospective investigation powers against directors.
This will allow them to look at the circumstances and actions of directors of dissolved companies and if any errors were made, such as striking off a business with an outstanding bounce back loan or VAT arrears for example, they could be followed with sanctions.
These would not only be fines or a disqualification period which could stretch to 15 years but under the new laws, directors could be made personally liable to repay company incurred debts.
Businesses that have been struck off by Companies House for failure to submit annual accounts or confirmation statements can also be reinstated but like all administrative restorations, they have to meet a certain criteria such as trading when they were struck off and that Companies House enforced the decision, not the directors.
If they do then they can apply to Companies House and complete an administrative restoration form.
If the business was not forcibly removed or doesn’t meet the criteria then they can seek company restoration by a court restoration order instead.
Once the application is filed and if all the essential forms such as business accounts and financial statements are up to date then the procedure will usually be completed in about four months.
Chris Horner, insolvency director with BusinessRescueExpert.co.uk said: “Restoring a company just to liquidate it might sound like a hassle but it could be the best thing a director could do to protect themselves if they have any concerns.
“The new legislation is almost exclusively aimed at directors who have tried to avoid repaying bounce back loans and other debts through dissolving their businesses.
“But directors who inadvertently struck off their company while it still had debts could very well get caught up in the same sweep.
“Directors who liquidate their companies voluntarily through a creditors voluntary liquidation (CVL) or other process don’t have anything to worry about – HMRC and the Insolvency Service are not targeting them.
“To avoid any doubt and worry, it would make sense for a director to restore their company, liquidate it and then continue with their career after all the loose ends have finally been tied up.
“They would then avoid disqualification and being made liable for a compensation order up to the value of the company debts plus fines and costs on top.”
Liquidation brings many benefits to a business owner or director.
As well as having more say in the process of appointing a liquidator, they can also legally close down even if they owe bounce back loans or other debts.
It brings finality to the situation through a definitive ending allowing the owners or directors to move onto their next venture without any more stress.
If a business has been dissolved improperly or if it had debts when it was struck off then this is a loose end that could become a bigger problem – especially if the Insolvency Service takes an interest in the business and how it was being run before closure.
Getting advice from an insolvency professional is always a good idea if you’re thinking about closing a business but if you need to consider an administrative restoration then it’s essential.
We offer a free initial consultation for any business owner or director to discuss the issues facing their company and together we can work out an efficient and effective solution which can usually be begun to be implemented almost immediately.
The sooner you get in touch, the sooner we can help.