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Changes to "informal liquidation": an important clarification
Readers will be familiar with Extra-Statutory Concession C16 – often referred to as the "informal liquidation" route. This provides that (provided advance assurances are given to HMRC, none of them very onerous) distributions made from a company in advance of striking-off may be treated as capital rather than income, potentially opening the door to an Entrepreneurs' rate of CGT of just 10% in place of income tax at rates of up to 36.11%.
Most readers will recall that a fly in the ointment has been that regardless of what ESC C16 provides, company law prohibits distribution of share capital. And if, following an unlawful distribution of share capital, a company is struck off, the Treasury Solicitor ("TSol") can in principle recover the amount of the unlawful distribution under the rules of "bona vacantia".
Hitherto the TSol had dealt with this absurdity by way of published concession stating that the Crown would not seek to recover such technically illegal distributions where the amount of share capital and premium involved was less than £4,000. But because Companies Act 2006 made it relatively straight-forward for a company to reduce its share capital and distribute it lawfully, TSol announced that the concession was to be withdrawn with effect from 14 October 2011.
But what does "withdrawn" mean? Several commentators have warned that "withdrawal" means that from 14 October there is no de minimis limit and that ALL unlawful share capital repayments are at risk. In fact, quite the opposite is true: the £4,000 limit has simply been removed and TSol have confirmed that they will not seek to recover ANY amount of share capital distributed in contemplation of strike-off. A happy ending indeed.
Or is it? What about ESC C16? This is to be replaced by a statutory provision but with a final sting in the tail. Although we await the final details, it has been proposed that it will apply only if the total net assets of the company (NB not the share capital) are less than £4,000, making the provision of very little practical application: a case of abolition by enactment.
At present, however, the best of both worlds is on offer in the sense that (subject to compliance with the ESC C16 requirements) the "informal liquidation" route remains available regardless of the level of assets or of share capital. So now might be a good time to tidy up those redundant companies.
