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Bona vacantia - your choices

The Treasury Solicitor's department has now published (as guidance note BVC 17 at www.bonavacantia.gov.uk) confirmation that they will not take a point on the technically unlawful return of capital where a limited company takes advantage of ESC C16, provided that the unlawful distribution (broadly, share capital, premium and non-distributable reserves) does not exceed £4,000. This confirms the position that we reported in BrassTax last year.

Where the potentially unlawful distribution exceeds £4,000 there are a number of unattractive choices. One is to make an unlawful distribution and wait for the Treasury Solicitor to notice. Few advisers would want to condone that. Another is to leave an appropriate amount of value in the company when it is struck off. Few clients will welcome that. A third is to appoint a liquidator, with its attendant costs. A fourth, if you would rather pay a lawyer than a liquidator ("rocks" and "hard places" spring to mind), is to seek a reduction in share capital by application to the court.

More attractive choices would normally be:

A) to repurchase most of the shares with a "permissible payment out of capital" (available only for private companies), which would normally be much cheaper than a liquidation (albeit that stamp duty will be payable).

B) to re-register the company as an unlimited company and thereby permit lawful distribution of share capital, which may be the quickest and cheapest course provided there are no concerns about members becoming liable for any liabilities that later surface.