From the ICAEW:
The Treasury Solicitor removes its concession so you must sort out the Share Capital before applying for a company to be struck off under C16
Technically speaking if a company is struck off under Extra Statutory Concession (ESC) C16 any share capital distributed as part of the ‘pay-out’ is treated as an unauthorised distribution under company law and this element of the payout can be recovered from the shareholders by the Crown as bona vacantia.
The Treasury Solicitor has in recent times exercised a concession under which they will not seek to recover share capital paid out during a company strike off if the amount of share capital involved is less than £4,000.
This concession is being withdrawn by the Treasury Solicitor with effect from 14 October 2011.
In future if you use ESC C16 to have a company struck off then if any of the money paid out represents share capital that amount can be recovered by the Treasury under the bona vacantia procedure.
The new arrangement is set out in a Notice published on the Treasury Solicitor website.
Unfortunately the explanation given in the Notice is not as clear as it might be and is likely to cause confusion.
Paragraph 2 states
In practical terms, can I now distribute share capital of any amount prior to dissolution without approval from TSol?
Yes. The TSC has been removed so there is no need to contact the Bona Vacantia Division regarding distributions of any amount. However, as noted above, depending on the circumstances, you will still need to comply with HMRC‘s ESC C16, or any successor legislation, and any other applicable rule in relation to share capital distribution.
But the key provisions you have always had to comply with in relation to share capital are the company law provisions and if you fail to comply with those provisions as to when share capital can, or cannot, be reduced or repaid then any money paid out is an unauthorised distribution and can be covered by the Crown. That covers any share capital paid out under the ESC C16 route as this has no standing as far as company law is concerned.
Before the Treasury Solicitor revoked their concession the company law position could be ignored as long as the amount of share capital that was distributed was less than £4,000.
The Treasury Solicitor has changed its mind, and revoked their Concession, on the grounds that the new provisions in Companies Act 2006 make it easier to reduce or pay back share capital and so the £4,000 de minimis concession is no longer necessary.
In future if you are going to take advantage of ESC C16 you can pay out any amount of distributable reserves, subject to capital gains tax, but you should reduce the share capital of the company to a nominal £1 if you want to avoid any problem with bona vacantia.
In the background to all this is the consultation on the potential statutory enactment of ESC C16. The proposal in the HMRC consultation document is that if the concession is enacted the amount that you will be able to distribute under the new statutory provision will be limited to an absolute maximum of £4,000 even if the distributable reserves are much greater than that.