When a limited company is struck off or dissolved, its outstanding debts technically cease to exist, as the company no longer exists as a legal entity. The debts belong to the company, not to you as an individual director.
However, this doesn’t necessarily mean the matter is resolved. Creditors who believe they’ve been treated unfairly retain the right to apply to the court for company reinstatement. If successful, they can then pursue these outstanding debts through standard legal channels, such as a winding-up petition.
As a director, you have a legal obligation to inform creditors of your intention to strike off the company. This allows them the opportunity to object if they deem it necessary.
It’s important to also mention that if you’ve provided personal guarantees for any company borrowing, you’ll remain personally liable for repaying the outstanding amount, even after dissolution.
To safeguard your position and ensure compliance:
Always close your limited company in a manner that prioritises creditors’ interests.
Consider formal liquidation if your company has debts.
Seek professional advice to understand all your options and potential liabilities.
Remember, company dissolution is not a mechanism for evading debts.
Can HMRC Chase a Company for Debts After It’s Dissolved?
Yes, HMRC can pursue a company for debts even after dissolution. Unlike most creditors, who have a six-year window to act, HMRC has up to 20 years to chase unpaid taxes from a dissolved company.
If HMRC believes your company owes them money, they can apply to the court to have your company restored to the register. Once restored, HMRC can take enforcement action to recover the debt, which may include winding up the company and selling its assets.
It’s worth noting that HMRC employs staff who work directly with Companies House to monitor impending dissolutions. They check for companies with outstanding tax liabilities and will object to the strike off process.
Key points to remember:
HMRC’s extended pursuit period makes tax debts a particular concern.
The tax authority can and does use its power to reinstate dissolved companies.
HMRC may take action to make an example of companies they believe have misused the system.
As a director, you should ensure all tax affairs are in order before considering dissolution. If you’re unable to settle tax debts, it’s crucial to engage with HMRC and consider all available options, including formal insolvency procedures if necessary.
What Action Can Creditors Take for Debts After a Company Has Been Dissolved?
Creditors have several options to pursue debts from a dissolved company:
Bring the Company Back to Life
Creditors can apply to the court to have a company restored to the register. If successful, this effectively ‘resurrects’ the company, allowing creditors to pursue their debts as if the company had never been dissolved.
Force the Company into Liquidation
Once restored, creditors might petition for compulsory liquidation. This involves appointing a liquidator to sell the company’s assets and distribute proceeds to creditors.
Go After Directors Personally
In certain circumstances, creditors might target you personally. This typically occurs if you’ve acted negligently or fraudulently as a director. It’s a serious step that could make you personally liable for company debts.
Issue a Final Demand
Creditors can issue a statutory demand against a restored company. If the debt remains unpaid for 21 days, the creditor can then petition to wind up the company.
This is why opting for a formal liquidation procedure is often preferable to simply dissolving a company with debts. It provides a clear process and can offer more protection against future action by creditors.
How Should Debt Be Dealt When a Company is Dissolved
When considering company dissolution, it’s crucial to address any outstanding debts properly. There are two main approaches you can take:
Pay Off All Debts
If your company is financially solvent, the ideal approach is to settle all debts before dissolution. This ensures a clean break and minimises the risk of future complications. Steps to take:
Create a comprehensive list of all creditors
Contact each creditor to confirm the outstanding balance
Arrange payment for each debt
Obtain written confirmation that the debt has been settled
Undergo Formal Liquidation
If your company can’t repay its debts in full, liquidation may be necessary. This is a legal process overseen by a licensed insolvency practitioner. The main steps involve:
Appointing an insolvency practitioner
Realising the company’s assets
Distributing proceeds to creditors according to legal priorities
Formally closing the company
Liquidation, specifically a Creditors’ Voluntary Liquidation (CVL), offers a structured way to deal with company debts when full repayment isn’t possible.
Whichever route you choose, it’s vital to seek professional advice from experts such as ourselves.
Can You Dissolve a Company to Avoid Paying Debts?
Some directors may try to dissolve a company to avoid paying debts, but this is not a legal or effective way to do so. Creditors, such as HMRC, are likely to lodge an objection, and the company may be restored to the register so that creditors can seek payment of their debts.
In addition to the risk of having the company restored, directors who try to dissolve a company with debts may also be held personally responsible for the company’s situation. This is because directors have a duty to act in the best interests of the company’s creditors, and dissolution may be seen as a breach of this duty.
If a company has debts, the best course of action is to seek professional advice. An insolvency practitioner such as ourselves can help you choose the best course of action.
How Company Debt Can Help
At Company Debt, we specialise in guiding directors through complex financial situations. Our team of experienced insolvency practitioners can:
Provide a comprehensive review of your company’s financial position
Explain all available options, including the pros and cons of each
Guide you through the chosen process, ensuring compliance with all legal requirements
Liaise with creditors on your behalf
We understand that facing company debts can be stressful. Our goal is to provide clear, practical advice tailored to your specific situation.
Get in touch today for a free, no-obligation consultation. Our experts are ready to help.
FAQs
Are Directors Liable for the Debts of a Dissolved Company?
Directors may be personally liable for a dissolved company’s debts if they are found to have acted improperly or if they have given personal guarantees for the debts.
How Long Can Creditors Pursue Debts After a Company is Dissolved?
The time frame for creditors to pursue debts varies. Generally, creditors have up to six years to pursue most debts. However, HMRC can chase certain tax debts for up to 20 years after a company has been dissolved.
Can Shareholders be Held Responsible for a Dissolved Company’s Debts?
Generally, shareholders are not held responsible for a company’s debts upon dissolution, unless they have provided personal guarantees. The liability of shareholders is typically limited to their investment in the company.
How Does Liquidation Differ From Dissolution in Terms of Debt Handling?
Liquidation involves the orderly winding down of a company, where its assets are sold to pay off debts. Dissolution, on the other hand, is the process of legally closing the company. In liquidation, debts are actively managed, whereas in dissolution, the company must not have any outstanding debts or liabilities.
What Happens to Employee Claims if a Company is Dissolved With Debts?
If a company is dissolved with outstanding employee claims (like unpaid wages), these employees are considered creditors. They can file claims for their unpaid earnings, and these claims will be addressed in accordance with the insolvency process undertaken.
Article sources
All Company Debt insolvency content is written by our licensed insolvency practitioners.
The primary sources for this article are listed below, including the relevant laws, and acts which provide their legal basis.
