A bizarre and pointless change to CRO procedure is set to cost some companies thousands of Euro in professional fees.
If you own a limited company and wish to close it down, you can no longer use the simple and inexpensive Companies Registration Office (CRO) Voluntary Strike Off process to have your company dissolved – if your company’s ‘Issued Share Capital’ exceeds €150. Instead, the CRO now will now require your company to undergo a Members’ Voluntary Liquidation – a more complicated process that can cost you several thousand euro in professional fees.
This arises from a little-heralded administrative change announced by the CRO earlier this year. Previously any company could avail of the Voluntary Strike Off process. Now it applies only to companies with ‘Issued Share Capital’ of less than €150.
Issued Share Capital is a technical term for the value of shares issued by a company. Most owner-operated companies will normally have an Issued Share Capital of €100, usually comprising 100 ordinary shares of €1 each.
However, a company that has been in existence since 2001 or earlier may well have an Issued Share Capital of €200, (eg 100 ordinary shares of €2 each). This is because such companies were encouraged, as part of the Euro Changeover, to convert their share capital from Irish Pounds to Euro. The most common way to do this at the time was to increase the value of their shares from £1 (€1.26973) each to €2 each. All such companies are now excluded from the Voluntary Strike Off procedure.
In addition, any company that was formed with a higher number of €1 shares (eg 3 shareholders with 100 shares each, making up a total of 300 shares) will also be barred from availing of a Voluntary Strike Off.
Furthermore, to qualify for Voluntary Strike Off, a company’s share capital must not have exceeded €150 anytime in the previous three years. If a company has a higher share capital, e.g. €200 or €300, it is difficult and problematic to have this reduced to a lower figure. And, even if they manage to do so, they will then have to wait three years before they can qualify for Voluntary Strike Off.
This means three more years of preparing and filing accounts and other general administration – all the time incurring additional costs.
I am sure there is a technically and legally sound reason for this obscure change, but its logic escapes me. I can’t help thinking that it is bizarre and pointless to arbitrarily ban some companies from the very useful Voluntary Strike Off process, simply on the basis that their share capital is slightly higher than the norm.
According to the 2010 CRO Annual Report, last year a total of 5,488 companies underwent Voluntary Strike Off, which meant that they were dissolved in an orderly and legal manner, with no creditors or obligations left unpaid. In contrast, the CRO struck off 6,272 companies for failure to file returns. Practically all of these companies were dissolved while owing unpaid filing fees to the CRO (up to €1,240 for each unfiled return), while many among them would have also owed further sums to Revenue, banks and other creditors.
All the time, it seems that bureaucratic administrative rules are making it harder and harder for compliant companies and their directors to adhere to the law – while at the same time over 6,000 companies last year were allowed to flout the law and avoid both their public filing obligations and the associated compliance costs.
One more example of punishing the innocent for the sins of the guilty?