Many practitioners would have been using ESC C16 without having been aware of what “bona vacantia” is and the recent coverage regarding this has added a layer of confusion.
Bona vacantia means “ownerless goods”. In the context of ESC C16, bona vacantia refers to the undistributable reserves of the company; typically, its share capital. The Treasury Solicitor’s Department has a Bona Vacantia division which is responsible for dealing with ownerless assets and passing them to HM Treasury.
Prior to Companies Act 2006, the Bona Vacantia department agreed that non-distributable reserves, of up to £4,000, could be extracted from the company, without them seeking to claim possession of these assets, provided that the persons extracting the cash had permission under ESC C16.
The Companies Act 2006 introduced new provisions that enabled the directors of a company, that on a declaration of solvency by the directors the company could turn its non-distributable reserves into distributable reserves. It is now therefore much easier to reduce a companies’ share capital under Companies Act 2006 than was hitherto the case under Companies Act 1985. Consequently, the £4,000 concession that had applied prior to the Companies Act 2006 became redundant.
On 14 October 2011, the Treasury Solicitor advised that the £4,000 de minimis limit for recovering unlawful capital distributions on dissolution of a company would be scrapped and they would no longer pursue recovery of any such distribution. This is an entirely separate matter from the proposed legislation of ESC C16, which merely deals with the tax aspects of a distribution.