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ESC C16 and Bona Vacantia concluded

When a company is struck off owning property (which term includes rights of any kind), that property vests in the Crown as "bona vacantia". From time to time the question surfaces how this affects companies that have been struck off following distribution of assets pursuant to Extra-Statutory Concession C16.

For example: your client company has assets of £20,000 represented by share capital of £1,000 and distributable reserves of £19,000. You apply and obtain agreement that ESC C16 will apply. You pay out the £20,000 to the shareholders and the company is struck off. Since the company has not in fact been wound up, the distribution of £1,000 is technically unauthorised. As such it is normally recoverable by the company. Any right to recover that amount is property of the company that passes to the Crown when the company is struck off. Will the Crown seek to recover the £1,000? And is the position different if the amount of the unauthorised distribution is £20,000? Or £100,000?

The Office of the Treasury Solicitor has confirmed (and will, we understand, be publishing in due course appropriate guidelines on its website www.bonavacantia.gov.uk) that a concession does operate in this area. But it is a limited one. Where a company has been struck off under s652 or s652A of the Companies Act 1985 and the shareholders have taken advantage of ESC C16, the Treasury Solicitor will waive the right to recover any unauthorised distribution of the kind described above provided the amount of the unauthorised distribution is less than £4,000.

It would therefore follow that where the amount of capital (which would include share capital, share premium and any non-distributable reserves) exceeds £4,000, then to avoid the bona vacantia difficulty there may be three possibilities:

Abjure ESC C16 and appoint a liquidator under a formal winding-up; or (possibly)
If ESC C16 applies, keep the amount of the "unauthorised distribution" below £4,000, if necessary by leaving property in the company. Obviously one will want to do this only if the value of assets sacrificed in this way is less that cost of engaging a liquidator.
Consider whether using ESC C16 in conjunction with the provisions at Companies Act 1985 s171 permitting a payment out of capital may be worth using.

If any reader finds it bizarre that utilising a concession promoted by one government department can result in a substantial claim from another government department, you are not alone...