Companies House compliance/ dissolution - any experienced MIPS out there?

Chinless WonderChinless Wonder Feels At HomeRegistered Posts: 61
Hi folks

I have some friends (a couple) who undertake various projects in the arts. None of it makes much money - in fact, generally these things make a loss. They're nice people, well meaning but not at all well organised. A lot of their activity is a bit adhoc, but they do present their creative work quite regularly.

They incorporated as a Ltd company with CH on 30th Sept 2009 (I found this out via searching CH out of my own curiosity).

In Jan 2011 while I had a quiet period I contacted them, said I'd noticed their CH listing, and offered to do their 1st year accounts (which should have been filed by Jun 2011). They didn't take me up on the offer, (though there was a continual "oh we must speak to you sometime") so I left it at that. They have still not filed accounts or return (according to Webcheck). Other than "having no money" I don't believe they have kept very good records.

I was at a seminar on Companies House recently and got the opportunity to ask the speaker about their situation. He advised that they file asap, pay the fine, and get on with it.

Having now been on Webcheck again I see their company is being dissolved, because they have not submitted any accounts or returns - ie CH consider them dormant.

I emailed them about this, and got the answer "yeah, we know about it, we're dissolving the company because it's all fallen apart and we have no money to do it anymore". Which is a partial lie - *they're* not dissolving. They are *being* dissolved, and it's because they have never bothered to get their a***es in gear.

I know that, if they want to continue with the ltd company, they must go through administrative restoration - which involves submitting the missing accounts and paying the fine (currently £750). My suspicion is that they will ignore the situation entirely and carry on life as normal, thinking "ah, life is so much simpler now we don't have all this Limited Company stuff hanging over our head that we've never got round to dealing with"

Do any MIPS on here have experience of the fall out they could reasonably expect if they carry on activity under the company name (or a version of it) while the company is dissolved? Do CH actively pursue this sort of thing or is there every chance that it will vanish, they can just ignore it all and there will be no comeback whatsoever? Is there any legal repercussion for suppliers who deal with them (eg artists who work freelance on their projects)?

If they say they undertook their activities as self-employed individuals (which I believe they both are), and not as the Ltd company, does this mean the Ltd company is legitimately dormant?

Another huge grey area is Corporation Tax. I doubt they ever told HMRC they had incorporated. That's a whole other can of worms.

Needless to say I'm NOT getting involved in a professional capacity, but they are friends (and nice people) and if I can make sense of their situation for them and express it to them in simple English I will. In terms of my own ethics I can't do nothing....

Any advice from knowledgeable MIPS would be much appreciated.

CW

Comments

  • MonsoonMonsoon Font Of All Knowledge FMAAT, AAT Licensed Accountant Posts: 4,069
    Getting things filed correctly at CoHo is the legal obligation of the officers. To not file statutory documents is a criminal offence. In practice, directors are only prosecuted in rare situations, and I've never heard of anyone getting into trouble for a situation akin to the one you outline, of which there are thousands every year, I'm sure. If CoHo has dissolved the company, then CoHo have taken the action they want to take, and from a CoHo point of view I see no practical merit in going through administrative restoration (especially if they don't have the money to do it).

    The tax side of things is the other side of the coin and the more important one, in my view. If the company dissolved owing no tax (because they made a loss) then the company is dead, can't file returns and if HMRC really wanted them to file a CT600, they should have blocked the strike off. In this situation, restoring the company in order to file a tax return that shows no tax due is arguably a waste of time, money and resources.

    If the company closed owing some tax, then it's trickier. Arguably HMRC should have blocked the strike off, and some may say it's their tough luck that they didn't. Company is dead and can't pay tax. Strictly speaking on dissolution all assets pass to the crown which insludes fixed assets, debtors, directors loan accounts, bank balances etc. If the directors keep any of these with the intention of permanently depriving the crown of them, strictly speaking it's theft. Even if this is the case, in practice, chances are no-one is going to do anything. It's up to the individuals conscience and personal ethics as to whether they will remedy the situation voluntarily as I don't expect anyone is going to come asking them for anything. I'm not saying doing nothing is right - I'm just saying it happens. A lot.

    This may be of interest:
    http://www.cheapaccounting.co.uk/blog/index.php/how-you-can-legally-get-away-with-not-paying-corporation-tax/

    In answer to your questions/ points:

    I was at a seminar on Companies House recently and got the opportunity to ask the speaker about their situation. He advised that they file asap, pay the fine, and get on with it.
    They would say that, they want their money (and indeed its their obligation to advise that officers comply with their legal obligations, more to the point!). However, they could do what they have done which is let CoHo just kick them off the register. The fine only triggers once the accounts are filed late; it is not a non-filing penalty. As above, the chances of action being taken is slim to none. Not saying it's right, but I understand why they are doing it.

    Do any MIPS on here have experience of the fall out they could reasonably expect if they carry on activity under the company name (or a version of it) while the company is dissolved?

    If the company was not formally liquidated then the prohibited name rules do not come into play so as long as it's clear they are a different entity to the dissolved company, they can use the same name.

    Do CH actively pursue this sort of thing? No. See above.

    or is there every chance that it will vanish, they can just ignore it all and there will be no comeback whatsoever?
    You got it. 99.9% chance, I'd say.

    Is there any legal repercussion for suppliers who deal with them (eg artists who work freelance on their projects)?
    No.

    If they say they undertook their activities as self-employed individuals (which I believe they both are), and not as the Ltd company, does this mean the Ltd company is legitimately dormant?
    You can't rewrite history. Either invoices were issued from/to the Ltd, or self employed people. Changing things retrospectively happens, but it is not correct, and could be construed as fraud, depending on the specifics. If the company was dormant then it was. It sounds to me like it was trading, so it was not dormant.

    and if I can make sense of their situation for them and express it to them in simple English I will. In terms of my own ethics I can't do nothing....
    To be honest, as you are their friend, doing next to nothing might be the best option. You've already tried to speak to them about it, they've brushed you off or not sought advice. The honest truth is that there is a less than 1% chance there will be any comeback at all from this, though any comeback would be legally justified as they have buried their heads in the sand about their legal obligations. It's up to them to do what they see fit (and it seems they've already made their decision - knowing the chances are tiny that anything will ever come of it, I can't see a chat from you reinforcing to them their legal obligations and the likely consequences is going to change their decision).

    I'm not saying this is right, but as you're asking as a friend and not in a professional capacity, my gut feeling is leave alone. Test the water to see if they want to talk about it, check they know what they are doing/ not doing, but depending on what they say, leave it at that. My gut feeling is that they won't thank you for trying to get more involved than this.

    If you really feel strongly about this and think they are evading tax, then report them. If you dont want to do that and they want to let sleeping dogs lie, then I think you have to do the same.

    I know I may get some flak for this post, but I think it's a measured, realistic response under the circumstances.
  • Chinless WonderChinless Wonder Feels At Home Registered Posts: 61
    Thank you Monsoon - that is immensely helpful.

    How I left it with my friends was that I recommended they go and speak to someone who knows the system. Chances are, if they do, that person will have the same view as you - in which case my friends will heave a sigh of relief, actually, no they wont - they'll shrug their shoulders and wonder what the big deal was about (rolls eyes). Meantime I've done my bit... and will continue to nod and smile every time they say "we must talk to you about our accounts!"

    I suppose with all these things there is the "de jure", per the letter of the law and the "de facto", what tends to happen day to day. For example I think in Scotland it's still an offence to move house after 11pm at night but noone ever gets prosecuted for it!


    Much appreciate your words of wisdom.

    CW
  • MonsoonMonsoon Font Of All Knowledge FMAAT, AAT Licensed Accountant Posts: 4,069
    Glad it helped CW, sounds like you're on the right track with it.

    And I think it's still legal to shoot a Welshman in Chester with a bow and arrow or something...!

    Sometimes the police will catch someone doing something illegal but decide not to arrest them and just give them "words of advice."

    Just because something's not strictly legal doesn't mean 'they' will always come down on you like a ton of bricks - but conversely that doesn't mean you should always take advantage of that - though many do.
  • Hasan.AhmetHasan.Ahmet Feels At Home Registered Posts: 87
    [QUOTE=They incorporated as a Ltd company with CH on 30th Sept 2009 I found this out via searching CH out of my own curiosity).

    Hi; I'm sure most will know this but here it goes anway, hoping it helps;
    "Incorporating" means transferring the business of an unincorporated body, (Say; in this case the business of these two persons) to a corporate body (Company), for the purpose of carrying on trading as a corporate body. Result;Company not dormant
    Distincly different from "Forming" a company or buying a ready made company which if not traded is dormant.
    If they formed a company but did not incorporate the existing business, and if this formed or bought off the shelf company has not traded it is dormant.

    Best regards
  • andrewtdkandrewtdk Well-Known Registered Posts: 150
    I know what you mean by incorporating a sole trader but im pretty sure that forming a company is classed as incorporating. When we form new limited companies through an agent they all come with an incorporation certificate with the official companies house seal on them. Also when you go on companies house website it refers to the date of incorporation and doesnt just say date of formation
  • MonsoonMonsoon Font Of All Knowledge FMAAT, AAT Licensed Accountant Posts: 4,069
    andrewtdk wrote: »
    I know what you mean by incorporating a sole trader but im pretty sure that forming a company is classed as incorporating. When we form new limited companies through an agent they all come with an incorporation certificate with the official companies house seal on them. Also when you go on companies house website it refers to the date of incorporation and doesnt just say date of formation

    Agreed, I've never heard of the distinction before.

    With regards the OP, how the company started is less of an issue than how the company is ending! :)
  • Hasan.AhmetHasan.Ahmet Feels At Home Registered Posts: 87
    andrewtdk wrote: »
    I know what you mean by incorporating a sole trader but im pretty sure that forming a company is classed as incorporating. When we form new limited companies through an agent they all come with an incorporation certificate with the official companies house seal on them. Also when you go on companies house website it refers to the date of incorporation and doesnt just say date of formation

    Hi Andrew, I see what you mean; May be at cross purposes though; "Incorporating a business" as against "Forming a company"; Obviously a company formed, being a corporate body is "incorporated" and would have a date of "incorporation" on the incorporation certificate.
    Different scenario from "Incorporating" a "business". May be in this case your two friends incorporating their business. ie; Forming a company to take over the business, lock, stock and barrell or in whatever form or forming a company -a corporate body- with it's date of incorporation and certificate of incorporation, without incorporating their business and continue running their business as sole traders or partners, and the company remaining on the shelf as dormant for whatever reason; may be they changed their mind and will sell the company on as an off the shelf company to someone else or may be will disolve it. As I say possible cross purposes with the terminology.
  • Hasan.AhmetHasan.Ahmet Feels At Home Registered Posts: 87
    Monsoon wrote: »
    Agreed, I've never heard of the distinction before.

    Hi Monsoon,
    I've heard of it;
    "Incorporating a business gives automatic presumption that a business exists and wishes to switch to corporate medium of operation. It is not same as commencing business and starting from scratch as a company"
    I'd say there is a clear distinction here.
  • deanshepherddeanshepherd Font Of All Knowledge Registered Posts: 1,809
    I say potatoe, you say potatoe..

    Hasan, it helps when using quotes if you name the source. It will then tell us whether the context is relevant (Companies House, HMRC, ACCA) or somewhere irrelevant (Frank Woods..).
  • Hasan.AhmetHasan.Ahmet Feels At Home Registered Posts: 87
    I say potatoe, you say potatoe..

    Hasan, it helps when using quotes if you name the source. It will then tell us whether the context is relevant (Companies House, HMRC, ACCA) or somewhere irrelevant (Frank Woods..).

    Hi Dean,
    This "Quote" is generic.;)) I agree naming sources where appropriate, in this case not relevant.
    I googled "Frank Woods" seems very respectable, quite useful and relevant source where appropriate.
    I don't know the answer to your potatoe, try the ex vice president of the USA; sorry.
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