It is becoming increasingly common for the users of board secretary services such as those provided by London Registrars to need help with removing surplus companies through solvent liquidation or strike-off. This is often required when a cumbersome group structure is the product of merger or acquisition (M&A) activity.

There are clear advantages with a well-planned simplification process with a typical payback period of just 12 to 18 months. A solvent liquidation also presents an opportunity for both ongoing and looming issues to be addressed and resolved.

‘Potential’ creditors usually have just one month in which to make a formal claim in voluntary liquidation, and in the event of a formal rejection of a claim by the liquidator necessitating the applicant having to make an application to the Court if they wish to further pursue it. This serves to deter spurious claimants while enabling any valid claim to be swiftly dealt with and settled as part of the liquidation process.

There are some unfortunate misconceptions concerning the rationalisation of a corporate structure in this way. Most importantly that any ongoing disputes in the relevant entities must be resolved before they can be put into solvent liquidation. In truth, instead of the claims having to rumble on for several years prior to the liquidation of a company, all such claims can be dealt with during the liquidation period.

However, although liquidators can reject claims, such claims can still incur expensive and protracted liquidation. This may lead the board to consider alternatives to removing surplus companies, such as using them as corporate vehicles for new activities. While surplus companies can be an inexpensive and immediate solution for such activities, it is important that they have a suitable tax history. You may also retain a surplus company for name protection purposes.

The process of reviewing the corporate structure, will of itself present the invaluable opportunity to make a comprehensive record of why the group chooses to retain certain companies – for example, certain historical contractual rights applicable to what may otherwise seem dormant companies. This, in turn, can help to prevent costly liquidation or strike-off mistakes in the future.

Additionally the group’s ownership chain is also likely to benefit from simplification as the board seeks to build some discipline concerning the ongoing dissolution of surplus companies, as and when they cease to serve a purpose. A product of this process will be to establish valuable corporate knowledge concerning the structure of the group, the cost of maintaining group members and who they can be used as and when a requirement arises.