Dormant Is Not Done: The Governance Audit That Should Precede a UK Subsidiary Dissolution

Entity rationalisation is often presented as a tidying exercise: a dormant subsidiary has stopped trading, the files are quiet, and the group wants a shorter structure. That may be commercially sensible. It is not, however, a reason to treat strike-off as an administrative afterthought. Dissolution changes the legal landscape around a company, and a board that signs it off without a proper audit can leave obligations stranded elsewhere in the group.

Dormant for accounts is not dormant for risk

A company may be dormant for accounting and filing purposes while still carrying contingent exposure. It may be a guarantor under a group facility, a party to an old lease, a respondent in an employment tribunal, or the holder of a tax position that has not been finally agreed. None of those matters necessarily appears in a dormant company file.

The governance question is therefore not simply whether the subsidiary has stopped trading. It is whether the group can demonstrate, with evidence, that the entity has no material liabilities, no contingent obligations and no claims that could later surface against a parent, a fellow subsidiary or a director. That is a board-level test, not a filing clerk's checklist.

Contingent guarantees and parent exposure

Guarantees are the most common source of unintended survival. A subsidiary may have given an indemnity, a performance bond, a letter of comfort or a cross-guarantee under a banking arrangement. The fact that the underlying contract has ended does not always release the obligation. In some cases, dissolving the subsidiary can make the parent's exposure more direct, not less.

Before any strike-off decision, the group should trace every guarantee, indemnity and comfort letter to which the subsidiary is party. Counterparties should be asked whether release is required, and any release should be obtained in writing. Where release is not possible, the board should record why the exposure is acceptable and who will manage it after dissolution.

Creditors, notices and the limits of the Gazette

The strike-off process includes notices and an opportunity for objections. That process is important, but it is not a substitute for internal reconciliation. A Gazette notice may flush out an unknown creditor; it does not prove that known creditors have been paid or that intercompany balances have been properly settled.

The group should reconcile the subsidiary's ledgers before filing. Trade creditors, professional advisers, landlords, lenders and fellow group companies should be contacted where balances remain open. If a creditor is known, the board should understand why the balance is unpaid and whether dissolution is being used to avoid it. Using strike-off to escape a genuine debt is not entity rationalisation; it is a governance and conduct risk.

Leases, property and residual obligations

Property commitments deserve separate attention. A lease may have ended in operational terms but still carry dilapidations, reinstatement, service-charge reconciliation or guarantor obligations. Assignment and surrender are not the same thing, and landlord consent may be needed before the subsidiary can be safely dissolved.

Where the subsidiary has occupied premises, the group should obtain a formal position from the landlord and check whether any parent guarantee survives. Similar questions arise for equipment leases, vehicle contracts and storage arrangements. These are often small in value but awkward to resolve once the contracting entity has gone.

Tax positions before the final return

Tax exposure can outlast the company. The subsidiary may have open corporation tax matters, VAT registrations, PAYE obligations, group relief claims or transfer pricing positions. A final return and deregistration are necessary, but the board should also establish whether HMRC has raised any enquiry or whether any balance remains disputed.

Records should be retained for the required period and stored where the group can retrieve them after dissolution. A common failure is not the tax calculation itself but the loss of supporting documentation once the entity's files are dispersed. If a query arrives two years later, the group needs to be able to answer it.

Employees and unresolved claims

Even a subsidiary with no current employees can carry employment risk. Former staff may have claims for notice, holiday pay, redundancy, discrimination or unpaid expenses. Settlement agreements should be checked for continuing obligations, and any live tribunal or grievance process should be resolved or expressly assessed before dissolution.

Pension auto-enrolment duties and any outstanding contributions also need to be closed out. Where employees were transferred, the group should confirm that no residual liability remains with the dissolving entity. Employment claims can be time-limited but they are rarely invisible; the board should ask the question rather than assume the file is closed.

Directors' duties at the end of the line

Directors do not stop having duties because a company is being wound up by strike-off. They must act in the company's interests and, where insolvency is a real possibility, have regard to creditors' interests. If the subsidiary cannot pay its liabilities, strike-off may not be an appropriate route at all; a formal insolvency process may be the responsible alternative.

Board minutes should record the information relied on, the alternatives considered and the reasons for concluding that dissolution is safe. That record matters if a creditor, regulator or court later asks how the decision was reached. It also gives the parent board a defensible basis for oversight.

A pre-strike-off checklist for the group

Before filing, the board should be able to confirm the following:

• A complete liability register has been prepared and reviewed by finance and legal.
• All guarantees, indemnities and comfort letters have been identified and, where possible, released.
• Known creditors have been reconciled, paid or otherwise resolved in writing.
• Lease and property obligations, including dilapidations and guarantees, have been addressed.
• Tax registrations, final returns and open enquiries have been reviewed and records retained.
• Employment claims, settlements and pension obligations have been closed or assessed.
• Intercompany balances have been settled or formally released.
• Assets have been transferred, written off or otherwise accounted for.
• Directors have considered solvency and recorded their reasoning in minutes.
• The parent board has reviewed the residual exposure and assigned post-dissolution ownership of any surviving issue.

The final file should stand up to later questions

Striking off a subsidiary is not inherently risky. Doing it without a clear evidence trail is. The purpose of the audit is not to make dissolution difficult; it is to make the decision defensible and to prevent a liability from migrating silently to another part of the group.

A dormant company can be a clean company, but only when the group has checked. The board that treats strike-off as the end of the paperwork, rather than the final control point, is the board most likely to discover months later that the file was closed before the exposure was.