Dissolution and Bona Vacantia post -14 October

The Bona Vacantia division of the Treasury Solicitor's Department recently caused confusion by amending its guidelines on the treatment of share capital distributed prior to a company's dissolution.

The basic legal position is that any assets which continue to be held by a company on the date of its dissolution vest in the Crown. In order to extract share capital from a company prior to its being dissolved, the requirements of the Companies Act 2006 on capital reductions should be complied with. If not, funds unlawfully distributed will strictly speaking pass to the Crown on dissolution.

The Treasury Solicitor has historically recognised that it is often uneconomical for small companies to comply with the capital reduction formalities under company law, or to commence a formal liquidation, and through its BVC17 guidelines has operated a concession whereby it will not look to recover pre-dissolution distributions of less than £4,000.

Since the 2006 Act introduced a simpler method of capital reduction through solvency statement as opposed to court order, the Treasury Solicitor was of the view that the concession was less relevant and therefore withdrew it from 14 October 2011.

Subsequently, however, the TSD's online guidance was updated to the effect that notwithstanding the removal of the concession, the TSD will not attempt to recover any distributions of capital made prior to dissolution. We are therefore left with the awkward position that whilst pre-dissolution distributions made otherwise than through a formal capital reduction are unlawful and strictly speaking vest in the Crown, the TSD has indicated in a policy statement that it will not bother to recover them.

On balance, it would seem sensible where significant levels of share capital are involved to extract these from the company by way of a formal capital reduction through the solvency statement procedure, particularly as this is not terribly onerous. This is a view reflected by the ICAEW.