Last Updated on January 21, 2025 by admin
Companies evolve and dissolve in the business landscape for personal or economic reasons. Company dissolution means that the firm will cease trading. The aftermath matters once a company is dissolved since directors face the potential consequences. When a company dissolves, all employees will be laid off. However, what people never talk about is what happens to director of dissolved company.
This guide will explain how company dissolution works, what happens to the directors, and the potential consequences directors may face after company dissolution.
What is company dissolution?
Also known as ‘striking off’ company dissolution is when a firm ceases to exist legally. This is the process of deregistering or closing down a company and removing it from the Companies House register.
To dissolve a company, the firm can apply to be struck off the register, or an application for voluntary striking off can be made by its directors if the company cannot apply to be struck off.
A company can also be dissolved involuntarily by Companies House if it fails to comply with tax, statutory, and financial obligations.
When you apply to dissolve your company, it is necessary to safeguard those who are likely to be affected such as employees, suppliers, creditors, shareholders and other interested parties. You should inform them early enough before applying for company dissolution to give more time to those who want to object.
Within 7 days of sending a strike-off application to the registrar, directors have the responsibility of sending a copy of signed DS01 form to every company member, HMRC, the Department of Work and Pensions (DWP), landlord or tenants, guarantor, creditors, former employees if the company owes them money, banks, personal injury claimants, managers or trustees of any employee pension fund, and any directors who have not signed the form.
The company’s directors also have the responsibility of sending a copy to people who at any time were directors, members, employees, and creditors of the company.
Directors should not resign before or after applying for strike-off since they have responsibilities of notifying relevant company members and communicating with Companies House. You can also face penalties or a jail term of a maximum of 7 years if you do not send the notices to the relevant parties.
What are the types of company dissolution?
Voluntary dissolution:
This is the process by which a financially stable company may choose to terminate its operations through a voluntary strike-off, which is considered the most cost-effective method. The directors of the company have the authority to apply for this voluntary dissolution. Furthermore, a subsidiary that no longer needs its registered name can also pursue a voluntary strike-off. Companies that have stopped trading are eligible for this process as well. To start voluntary closure, it is essential to complete and submit a DS01 form. The company must satisfy the following conditions to deregister using the DS01 form:
- It must not have conducted any trading activities in the past three months.
- It must not have entered into any arrangements with creditors, such as a Company Voluntary Arrangement (CVA).
- It must not have changed its name within the last three months.
Involuntary dissolution:
This occurs when a company is unable to meet its financial commitments, resulting in creditors’ rights taking precedence over those of directors or shareholders. In such circumstances, several options are available:
- Administration: Commence administration proceedings for the company.
- Striking off: Seek the removal of the company from the official register maintained by Companies House.
- Creditors’ Voluntary Liquidation: Arrange for a creditors’ voluntary liquidation. In this case, assets may be sold off to pay debts owed to creditors before the company’s closure. While various forms of liquidation exist, creditors’ voluntary liquidation (CVL) is the most commonly employed approach when directors independently conclude that the company should be dissolved due to insolvency.
What happens to directors when the company is dissolved?
What happens to director of dissolved company? Once the company is dissolved, the liability of directors ceases. They are free to pursue their interests or become directors of other companies.
However, if company dissolution was marred with discrepancies or the company was shut down involuntarily due to directors’ failure, they may face consequences such as;
Disqualification: Directors may face disqualification from future directorships if they are found guilty of misconduct or if they intentionally evade debt obligations. Such disqualification may extend for a period of up to 15 years.
Personal liability: Directors may incur personal liability for the debts of the company.
Loss of assets: Director’s risk of forfeiting company assets to the Crown, which may include financial resources, real estate, and equipment.
Jail term: Directors have the responsibility of notifying company members, employees, other directors, creditors, shareholders, banks, HMRC, and any other person who is or has a connection with the company within 7 months of applying for dissolution. If a director fails to notify them, they may be fined or face a maximum of 7 years jail term.
Other Consequences:
Directors may encounter additional repercussions, including:
- Charges of misfeasance
- Inability to recover amounts owed by creditors
- Financial losses related to taxation
Can a director of a dissolved company start a new company?
A director from a dissolved company can start a new company if no legal restrictions are preventing them from doing so. If they were found guilty of unfit conduct and were disqualified from acting as a director, they cannot start a new company.
Directors must ensure they have met all financial and legal obligations during the dissolution process before starting a new company.
Once you start a new company, as a director you must also ensure to understand your responsibilities towards your company to stay compliant with Companies House.
UK directors of a limited company are responsible for;
- Filling company’s accounts and tax return
- Paying corporation tax
- Following company rules as per the Articles of Association
- Keeping company records
- Reporting company changes
- Informing shareholders if you might personally benefit from a transaction the company makes
While these are directors’ responsibilities, they can hire an accountant to do these on their behalf. However, if an accountant makes a mistake, directors will be held responsible. Directors may be fined, disqualified from being a company director or even prosecuted.
So, what happens to director of dissolved company? Directors’ liability ceases. They have a right to pursue other business opportunities even if it is to start a new company or be a director of another company. However, to start a new company or be a director of another company, one must not be disqualified for unfit conduct or found guilty. Directors should ensure they know and keep up with their responsibilities and keep up to date with any changes made by Companies House, Her Majesty’s Revenue and Customs (HMRC), and any government bodies in the UK.
If you need help regarding any aspect of company dissolution, BusinAssist can help you. We help limited companies in any aspect of the dissolution process. From the initial application stage till the Final Gazette Notice (this is a legal requirement). We also speak to Companies House on your behalf to address any queries they may have during the whole dissolution process.
If you do not use our UK virtual office services, you can use our virtual address service as the registered and correspondence address for free until the dissolution process is over.
For more information, contact us at [email protected].
FAQs
Q: Can one director dissolve a company?
Ans: It will depend on the circumstances of the company. If a company has many directors, it can be dissolved by a majority. Directors must pass a board resolution to formally approve the dissolution.
Q: Can you pursue a director of a dissolved company?
Ans: Yes, you can pursue a director of a dissolved company if they acted improperly during the dissolution process or fraudulently during their performance as a director.
Q: When to resign as director of a dissolved company?
Ans: A director of a dissolved company can resign once the dissolution process is over. During the dissolution process, directors have responsibilities and obligations to fulfill like notifying members, shareholders, directors, HMRC, employees, banks, guarantors, creditors, and all other people linked to the company within 7 days after the dissolution application.
Q: How to resign as company director?
Ans: To resign as a company director, you will need to;
- Check if your contract or service agreement has a notice period
- Inform other directors you intend to resign in writing
- File a TM01 form ‘Terminate an appointment of a director’ with Companies House
- Inform stakeholders and clients
- Update the company’s statutory register
Q: What is a director’s role in a company?
Ans: As a director, you have a role to play such as;
- Keeping company records up-to-date
- Running the company
- Paying Corporation Tax
- Filing accounts and tax returns
- Follow company rules as outlined in the Articles of Association
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