If a company does not file its annual return with the Companies Office, it may be struck off from the Companies Register. This is sometimes used as a ‘short-cut’ method, rather than completing the short-form company liquidation process.
However, this approach comes with some risks, for example, if a company is struck off the register whilst it has tax credits owed by Inland Revenue (IRD), the tax refund is effectively forfeited and will not be paid to the company nor its shareholder(s) unless the company is reinstated.
Similarly, if a struck off company is still named as the owner of land (on the title), the company has to be reinstated in order to transfer the land to its correct owners and then wound up again.
Although the process of winding up a company can be lengthy, to minimise risk for both the business and its stakeholders it is recommended that the correct procedure is followed.
The process should always be commenced with a special shareholders resolution, which provides legal evidence that the majority of shareholders agree to the wind-up. It represents the point from which capital gains may be distributed tax free and is a commonly requested by IRD if they happen to review the wind-up process.
Any outstanding company liabilities are then satisfied, including trade creditors and anything owed to related parties. Surplus assets are distributed to shareholders, ensuring any legal formalities are observed depending on the type of asset (e.g. updating the land registry for any land / buildings).
For tax purposes, distributions to shareholders may be non-taxable to the extent they are comprised of share capital or capital gains, however excess amounts may comprise taxable dividends to the shareholders.