Once formed, the law regards a company as an artificial legal “person” with rights and obligations distinct and separate from those who formed it. A company can own assets in its own name like any other person can do. And the company never dies, only its existence gets terminated either by its name being struck off the public register at the Companies’ House or by being wound up and dissolved.
Before a company is dissolved, the shareholders should ensure that assets owned by the company are distributed to its shareholders. If this is not done, assets owned by the company at the date of dissolution will pass into the ownership of the Crown. Such assets are then known as bona vacantia a Latin term for “ownerless property.” Interestingly, only assets pass on to the Crown as bona vacantia, not its liabilities! So when a company is dissolved, most of its liabilities get extinguished and its secured creditors get paid in accordance with the charges created on the company’s property. Unsecured creditors could fight on by restoring the company to the public register, and then by bringing on legal claims against the restored company.
The Companies Act 2006 (CA 2006) provides an alternative to a formal wind up in that under s.1003 the directors could ask the Companies House to strike the company off the register. A strike off under s.1003 does not mean a wind up. So technically a distribution made pursuant to a strike off does not include repayment of the paid-up share capital. It is here that the doctrine of Bona Vacantia (property without a legal owner) applies. Let us consider an example: if a company has £ 5,000 share capital and £15,000 of reserves only the reserves could be distributed UNLESS the company goes for a formal wind up by appointing a liquidator. So in the case of a strike-off, applying the doctrine of Bona Vacantia, £ 5,000 can’t be distributed and would belong to the crown.
But there is a simple way around now: the Bona Vacantia Division of the Treasury Solicitor’s Department have withdrawn BVC17, with effect from 14 October 2011. BVC17 originally provided a concession in that the Crown wouldn’t pursue capital distributions up to £ 4,000. Effectively what this meant was that the Crown would pursue recovery of capital distributions above £ 4,000 made to shareholders on strike-off. Withdrawal of BVC17 now means that after 14 October 2011 the Crown would not pursue recovery of any company property becoming Bona Vacantia under s.1012 of CA 2006.
It will, however, be interesting to understand the reason behind this change. Simple: it is easier now to reduce the capital to £1 (or even 1p) under the companies Act 2006, under Chapter 10, Part 17A of CA 2006, leaving only some copper coins to be Bona Vacantia! All it requires is a solvency statement to be issued and certain simply procedures followed!
So going by the above example how could the capital of £ 5,000 be distributed before strike-off? The first step would be to reduce the capital, following the procedures laid down under s.641 of the CA 2006, leaving very little to be Bona Vacantia.
