When a limited company in the UK is dissolved, it legally ceases to exist. This means that, in theory, any outstanding debts the company had will also disappear.
However, it’s not always that straightforward.
If a company has outstanding debts and is dissolved either voluntarily or struck off by Companies House, creditors can apply to the court to have the company restored for the purpose of settling the debts.
Dissolution doesn’t always extinguish the company’s liabilities.
Creditors can still enforce their rights and claim money they are owed, even after the company has been dissolved.
If the company was insolvent, the liquidator will distribute any assets proportionately among the creditors.
If there are insufficient assets to cover the debts, the creditors may have to write off the balance.
Can HMRC Pursue a Dissolved Company Over Debt?
HM Revenue and Customs (HMRC) is one of the most persistent creditors a company can have.
If a dissolved company owes money to HMRC, it can apply to the court to have the company reinstated so it can collect the debt. HMRC, like any other creditor, can pursue the directors of the company if it can prove that they acted improperly or illegally in the run-up to the dissolution.
It’s also worth noting that directors can be held personally liable for certain types of company debts, especially if they have provided personal guarantees or if they have allowed the company to trade while it was insolvent.
Click here if you would like to find out about our limited company dissolution service.
Can HMRC Object to a Company Strike-Off?
Yes, HMRC can object to a company being struck off if the company owes it money.
This is because striking off a company effectively ‘kills’ it, and it would then be impossible to collect any outstanding debts from the company.
If the HMRC suspects that the directors of the company are trying to evade paying their debts by striking off the company, it can object to the strike-off and apply to the court to have the company reinstated.
Can You Dissolve an Insolvent Company?
Technically, it’s possible to dissolve an insolvent company,
Under UK law and depending on the circumstances, if a company is insolvent, it should go into liquidation or administration rather than being dissolved.
The process of liquidation allows creditors to claim what they are owed from the company’s assets, whereas dissolution simply makes the company cease to exist.
Dissolving or liquidating an insolvent company can lead to directors being held personally liable for the company’s debts, and they could also be disqualified from being a director of any company for up to 15 years.
Can You Dissolve Your Limited Company to Avoid Paying Debts?
Dissolving a limited company to simply avoid paying debts is not only illegal but can also have severe consequences for the directors involved.
This action can be considered fraudulent, and if a creditor or the Insolvency Service investigates and finds evidence of wrongdoing, the directors can be held personally liable for the company’s debts.
The directors could also face disqualification, fines, or even imprisonment.
Therefore, it’s always advisable to seek professional advice if your company is in financial trouble, rather than trying to avoid paying debts through dissolution or not completing the process legally.
Can You Dissolve a Limited Company With Debts?
It’s possible to dissolve a limited company with debts, but only if it meets certain conditions.
The company must have ceased trading for at least three months, have no outstanding legal proceedings against it, and not be in liquidation or administration.
It also should be able to pay its debts, including any contingent liabilities, within 12 months.
If a company is dissolved with debts and a creditor later discovers this and brings it to the attention of the court, the company can be reinstated and the directors held responsible for the outstanding liabilities.
What Should You Do if You Need Help with Company Dissolution?
Navigating the complexities of debt management and company dissolution can be challenging.
If your limited company is facing financial trouble, you don’t have to go it alone.
Marchford specialises in limited company closures, and our team of experts is ready to guide you through every step of the process. From understanding the implications of dissolution to exploring all available options, we are committed to providing you with the best advice and solutions.
Contact us today to schedule a consultation, and let’s discuss how we can help your company navigate its financial challenges. Your peace of mind is our priority.
Final Notes On What Happens to Debts Once a Company is Dissolved in the UK
While it may seem that dissolving a company could be a way out of paying debts, it is a complex process that can have severe implications if not done properly.
Debts do not just disappear when a company is dissolved. Creditors, including HMRC, can still apply to the court to have the company reinstated to claim the money they’re owed.
If a company is insolvent, the proper procedure is for it to enter liquidation or administration, not dissolution.
Directors who try to avoid paying the company’s debts through dissolution can be held personally liable for those debts and could also face disqualification, fines, or even imprisonment.
Remember, it’s always better to handle financial difficulties legally and ethically, not just for the sake of your company but for your own personal liability as well.