Compulsory Strike Off: Process, Risks, and Solutions

A compulsory strike-off is a legal process initiated by Companies House to remove a company from the register^[1]Trusted Source – .GOV- Strike off, dissolution and restoration.

This process can significantly affect a company’s directors, shareholders, and creditors.

In this guide, we will delve into the mechanics of compulsory strike-off, explore why it may be initiated, and examine the consequences of the process.

We will also provide valuable insights into how you can avoid compulsory strike-off and protect your business.

Our licensed insolvency practitioners specialise in helping businesses negotiate challenges with debt; please get in touch with us for free and confidential advice.

What is a Compulsory Strike Off?

A compulsory strike-off is a legal process initiated by Companies House to dissolve a company that is no longer doing business or trading.

This process involves removing the company’s name from the register of companies, effectively dissolving the company and bringing it to an end.

In some cases, Companies House may initiate the process if the company fails to file its annual returns or confirmation statement.

A compulsory strike-off is intended to protect the public by ensuring that defunct companies are removed from the register.

What are the Reasons for Compulsory Strike Off?

There are several reasons why a limited company may be subject to compulsory strike-off, as per Section 1000 Companies Act 2006. 

1. The limited company is not carrying on business or is not in operation
2.  The company still needs to file its annual or annual returns:
3.  The company has been dormant for an extended period
4.  If a company has no appointed directors
5.   If Companies House is not receiving any response to their correspondence
6.   If the company is being liquidated, but no insolvency practitioner has been appointed

Compulsory Strike-Off Process

1. Companies House sends a letter to the limited company’s registered office stating they are considering striking off the company.
2. If no action is taken, Companies House will send a second letter, which is a final notice, giving a period of two months to take action.
3. During this two-month period, the company can respond to the final notice by either providing proof that the company is still active and trading or by voluntarily applying to be struck off.
4. Companies House will advertise the impending strike of in the Gazette, the official journal of public record.
5. If no response is received, the company will be struck off the Companies House register and will cease to exist as a legal entity.
6. After the company has been struck off, its assets will be forfeited to the Crown.
7. If the company had any outstanding liabilities or debts, the directors can still be held personally liable for these debts even after the company has been struck off.
8. If the director wants to restore the company to the register, they will need to apply to Companies House and follow the required restoration process, which can be costly and time-consuming.

What are the implications of a strike-off notice in the Gazette?

The publication of a compulsory strike-off notice in the Gazette means that the company’s status is now a matter of public record. This can be a cause for concern for the company’s directors and shareholders, as it can harm the company’s reputation and damage business relationships with suppliers, customers, and other stakeholders.

What are the Consequences of a Compulsory Strike Off for Directors, Shareholders, and Creditors?

The consequences of a compulsory strike-off can be far-reaching and significantly impact directors, shareholders, and creditors.

Directors – For directors, a compulsory strike-off can result in personal liability for the company’s debts and potential legal action. They may also face restrictions on their ability to act as directors of other companies in the future, including disqualification.

Shareholders – may lose their investment in the company, and any remaining assets will become the property of the Crown^[2]Trusted Source – .GOV- Bona Vacantia: This includes any property the company owns, such as land or buildings, as well as any money owed to the company.

Creditors may be unable to recover debts owed to them by the company, as the company will no longer exist.

Can creditors object to a compulsory strike-off?

Yes, creditors can object to a compulsory strike-off. If a creditor has concerns that the company may have outstanding liabilities or debts that have not been paid, they can raise an objection to the strike-off with Companies House.

The objection must be made in writing and sent to Companies House within the two-month period following the second letter of notification. The creditor must provide evidence of their claim, such as an invoice or other documentation, to support their objection.

If an objection is raised, Companies House will investigate the claim and may delay or suspend the strike-off process until the matter is resolved.

Creditors can also apply to the court to have the company wound up if they believe that the company is insolvent and cannot pay its debts. In such cases, the court will appoint a liquidator to sell the company’s assets and distribute the proceeds to the creditors.

How to Avoid or Stop Compulsory Strike-off

There are several steps that a company can take to avoid compulsory strike-off:

1. Filing annual accounts and annual returns: A company may be subject to compulsory strike-off if it fails to file its annual returns with the Registrar of Companies. 
2.  Keep the company active: If a company is not doing business or is not operating, it may be eligible for compulsory strike-off.
3.  Respond to any notifications from the Registrar: If the company receives any notifications from the Registrar of Companies regarding compulsory strike-off, it is important to respond to these notifications promptly. 
4.  Seek professional advice: If the company is at risk of compulsory strike-off, it may be helpful to seek the advice of a professional, such as a solicitor or licensed insolvency practitioner.

Key Insights and Takeaways

Insolvency practitioner Chris Andersen offers the following key points:

Ensure you understand your statutory duties as a director – The Companies Act 2006 makes it clear that directors have a duty to submit annual accounts that give an accurate view of the limited company’s assets, liabilities and financial position.

Directors should be aware that they only have legal protection if they comply and perform their duties under the Companies Act, and failure to take account of the needs of the company, shareholders and creditors could potentially leave them at risk if challenged. 

As a director, you may be happy for the company to be struck off. You will still need to make sure that assets and debts are dealt with, so you should take professional advice at this stage from a licensed insolvency practitioner such as ourselves.

Even if a compulsory strike-off has been initiated, HMRC will object if there are sums due to them or the banks in case of bounce-back loan default. Strike-off is, therefore, not a viable way to avoid insolvent liquidation if the company cannot pay its debts.

Compulsory Strike-Off FAQs

References

The primary sources for this article are listed below, including the relevant laws and Acts which provide their legal basis.

You can learn more about our standards for producing accurate, unbiased content in our editorial policy here.

1. Trusted Source – .GOV- Strike off, dissolution and restoration
2. Trusted Source – .GOV- Bona Vacantia