Compulsory strike-off is a process by which a company is removed from the official register of companies and dissolvedTrusted Source – .GOV- Strike off, dissolution and restoration.
This article will explain the process, discuss the implications for a company and its directors, and outline the potential consequences for shareholders and creditors.
We will also provide tips and strategies for avoiding compulsory strike-off and explain the options available if your company is at risk.
If you need advice or assistance on what to do if your company has received a First Gazette Notice for Compulsory Strike Off letter, please call, email us or use the live chat. We are experienced and affordable.
- What is a Compulsory Strike Off?
- What are the Reasons for Compulsory Strike Off?
- What are the Consequences of a Compulsory Strike Off?
- What Does Compulsory Strike-Off Mean For Directors?
- What are the Consequences of Striking-off for Shareholders and Creditors?
- How to Avoid Compulsory Strike-off
- Key Takeaways
What is a Compulsory Strike Off?
Compulsory strike-off is a legal process by which a company is removed from the register of companies and dissolved.
It can occur when a company has not been doing business or has yet to file the required annual confirmation statement with Companies House.
After Companies House initiates the process, the company can object to the strike-off before it takes effect. Once a limited company has been struck off, it will no longer have legal existence and cannot carry on business or enter into contracts.
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.
- The limited company is not carrying on business or is not in operation: This could be the case if the company has ceased trading or never started in the first place.
- The company still needs to file its annual or annual returns: It is a legal requirement for all companies to file these documents each year, and failure to do so can result in the company being struck off.
- The company has been dormant for an extended period: Too long a period of dormancy or inactivity may catalyse a compulsory strike-off.
- If a company has no appointed directors – It is a legal requirement for limited companies to have at least one director.
- If Companies House is not receiving any response to their correspondence
- If the company is being liquidated, but no insolvency practitioner has been appointed
What are the Consequences of a Compulsory Strike Off?
There are several consequences of compulsory strike-off:
- The company will be dissolved: This means that the company will cease to exist as a legal entity and will no longer have any legal standing.
- The company’s name will be removed from the official register: Removal from the list of registered companies means that the company cannot carry on business or enter into contracts.
- The company’s assets will become the property of the CrownTrusted 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.
- The company’s directors may be personally liable for its debts: If the company has any outstanding debts when it is dissolved, the directors may be personally liable for these debts. This means they could be pursued for payment by the company’s creditors.
- It may be difficult to restore the company: This is because the company will no longer exist as a legal entity, and restoring a dissolved company can be complex and time-consuming.
What Does Compulsory Strike-Off Mean For Directors?
There are several potential consequences of compulsory strike off for directors:
- The directors may lose their jobs: When a company is struck off the register, directors will no longer be able to carry out their roles or make decisions on behalf of the company.
- The directors may be personally liable for the company’s debts: If the company has any outstanding debts when it is dissolved, they may be personally liable for these debts. This means they could be pursued for payment by the company’s creditors.
- The directors may face disqualification: In some cases, the directors of a company that has been struck off the register may be disqualified from acting as directors of other companies. The strike-off may be seen as evidence that the directors have not fulfilled their duties.
What are the Consequences of Striking-off for Shareholders and Creditors?
- Shareholders may lose their investment: When a company is struck off the register, the company will be dissolved and no longer have any assets or liabilities.
- Creditors may be unable to recover their debts as the company will no longer exist
- It may be difficult to restore the company
- Damage to Company Reputation – An application for Compulsory strike-off, which is publicly advertised in the Gazette, could damage the business’s credibility and creditworthiness.
- Company Assets – Compulsory strike-off could result in assets (including money in the bank account) becoming Crown Property
How to Avoid Compulsory Strike-off
There are several steps that a company can take to avoid compulsory strike off:
- Filing annual accounts and annual returns: One of the main reasons a company may be subject to compulsory strike-off is if it fails to file its annual returns with the Registrar of Companies. To avoid this, it is vital to ensure that these documents are filed on time each year.
- Keep the company active: If a company is not doing business or is not operating, it may be eligible for compulsory strike-off. To avoid this, it is crucial to keep the company active and have statutory paperwork filed.
- 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. This will help to ensure that the Registrar clearly understands the company’s position.
- 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.
Insolvency practitioner Chris Andersen offers the following key points:
Make sure 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 assets, liabilities and financial position of the limited company.
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
It may be that you, as a director, are 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.
What’s the timeframe of a Compulsory Strike-Off?
Companies House will send you two letters announcing their intention, 14 days part.
If no reply is received to the second letter, they will proceed with the advertisement in the Gazette. You have a minimum of 2 months from the advertisement until a second advertisement announces the formal strike-off.