How can you wind up a Community Interest Company (CIC)? There are two ways to wind up a Community Interest Company: liquidation or voluntary strike-off. Both will result in the Community Interest Company being dissolved and struck off at Companies House. The procedure used will tend to depend on whether the CIC is solvent or insolvent.
Whilst it is a special type of limited company designed for the benefit of the community, the approach to closure is much the same as with a normal limited company. To dissolve a Community Interest Company (CIC), that is solvent and which therefore does not need to first go into liquidation, requires using DS01 form to strike of a company at Companies House. A CIC that is insolvent could theoretically opt for dissolution, but more usually will need to go into liquidation before being struck off.
Liquidation To Wind Up A Community Interest Company
You can voluntarily place a Community Interest Company into liquidation. A Community Interest Company liquidation is often the appropriate way to wind up a CIC because liquidation is a recognised legal procedure in the Insolvency Act 1986. It is a means to close down any company that is either solvent or insolvent. Unlike dissolution first, liquidation is a process that creditors cannot formally block through objection.
The way a Community Interest Company is finally closed down after being liquidated is that it has to be dissolved at the end of the liquidation process.
Members Resolution For Voluntary Winding Up Of A CIC
In order to close and shut down a Community Interest Company using the voluntary liquidation, a resolution needs to be passed by 75% of the members attending and voting at a meeting of the company or by way of a written resolution.
Role Of Creditors
If the CIC is insolvent, then liquidation of a community interest company requires creditors to be given notice so can participate in the appointment of a liquidator. That is aided by providing them with information such as a Statement of Affairs and what is known as the SIP 6 Report For Creditors.
Upon appointment, the liquidator will distribute to creditors any available assets realised after the expenses of the wind up have been paid in accordance with the statutory order of payment in insolvency proceedings.
Requirements For Dissolution Of A CIC
To dissolve a CIC, you must ensure the following:
- The CIC has not traded or changed its name in the last three months.
- The company has no legal proceedings against it.
- It has no existing assets or liabilities.
- The CIC has not engaged in activities other than those necessary to conclude its affairs, such as paying off liabilities or disposing of assets.
If any of these do not apply, dissolution is not appropriate as a way to wind up a Community Interest Company, and liquidation of a Community Interest Company should be considered instead.
Notify The Regulator
Under Section 27 of the Companies (Audit, Investigations and Community Enterprise) Act 2004, CICs have a Regulator called the Regulator of Community Interest Companies.
You should notify the Regulator of your intention to dissolve before you send the DS01 form to Companies House.
If you wish to transfer assets for less than full consideration to an asset locked body that is not already specified in the articles of association, you will need the consent of the Regulator and must complete form CIC53. The information supplied will be used to help the Regulator decide whether or not to object to the striking off of the CIC.
Submit Form DS01 To Companies House To Dissolve A CIC
You can apply for striking off by filing Form DS01 with Companies House. A copy of it must be given to every Shareholder, Director, Employee, Creditor, Potential creditor of the company, such as anyone who has threatened or started legal proceedings and Pension manager or trustee.
When the form is accepted, a notice will be placed in the London Gazette, or the Edinburgh and Belfast editions as appropriate, giving at least 2 months notice of the intent to remove the company.
Difference Between Dissolution And Liquidation
There is a difference between dissolution and liquidation:
- Dissolution is a voluntary striking off from the Companies House register. It is generally unsuitable to cease a community interest company (CIC) with debts outstanding debts because creditors can and often do object, which can stall and block such winding up procedures for the Community Interest Company.
- Liquidation (either solvent or insolvent) is a formal process that involves a licensed insolvency practitioner. This route is required if the CIC has debts or needs to distribute assets in an orderly fashion, as set out in the Insolvency Act 1986.
- CICs also have a dividend cap by virtue of Regulation 22 of The Community Interest Company Regulations 2005, which caps the dividend at 35% of the company’s distributable profits. A liquidator undertaking investigations may, in the event of an unlawful dividend, have to consider clawing the same back from shareholders as part of the winding up process. This may constitute part of the CIC’s property to be recovered.
Ceasing To Be A Community Interest Company
If a CIC wishes to simply cease to be a community interest company, it can only do so under Section 53 of the Companies (Audit, Investigations and Community Enterprise) Act 2004 by going into dissolution or by becoming a charity.
