How to Strike Off a Company
The dissolution, also known as ‘striking-off’, has the effect of removing the company from the Companies House Register, so annual returns and accounts no longer need to be filed. Unlike other methods of voluntarily closing a limited company, there will be no liquidation costs to incur and very little publicity surrounding the dissolution. There will also be no investigation into your conduct as a company director.
For a voluntary dissolution to take place, there are some conditions that must be met. ALL of the following must apply for a voluntary dissolution to take place:
- The company must have no assets, property or cash in the bank;
- The company must not have traded for three months or have changed its name during that period;
- The creditors must be informed of the decision and asked for their permission for the dissolution to take place;
- The company must not have disposed of any assets (that includes buildings, land, equipment, plant, debtors and other assets).
Having a company ‘struck-off’ the Companies House register is not the only way to close a limited company. There are three ways the directors of can close a business voluntarily. That includes:
- Applying to be struck off the Register at Companies House (Dissolution)
If the business is solvent, meets all of the conditions listed above, is no longer needed and will not be needed in the future, then this is likely to be the cost effective way to close the company down. The directors will need to make sure all day-to-day transactions are complete, and all creditors have been paid before the company is ‘struck-off’.
- A Members’ Voluntary Liquidation (MVL)
Once it has been determined that a company is a solvent, a majority of the shareholders must complete a declaration of solvency and call a shareholders’ meeting during which a resolution to wind up the company can be passed. A liquidator will be appointed to realise the company’s assets and distribute the proceeds to the shareholders.
- A Creditors’ Voluntary Liquidation (CVL)
If the company is insolvent i.e. unable to pay its debts when they become due, the only way to close the company voluntarily is via a CVL. In this case, a liquidator will be appointed to realise the company’s assets for the benefit of its creditors.
Given the relative ease, speed and low costs associated with the dissolution process, it is often the preferred method of closure for company directors. But how does the process work?
What’s the Process of Dissolving a Company
Before you apply to Companies House to strike-off a company, it must be closed down properly. That includes:
- Informing HMRC of your intention to close the business;
- Paying any Corporation Tax due
- Paying any remaining creditors;
- Completing the final payroll and providing P45s for all staff and directors;
- Paying all PAYE and NIC liabilities and requesting that HMRC closes down the payroll;
- Submitting a P35 Employer Annual Return;
- Disposing of any remaining business assets (once dissolved, any assets will be frozen and will belong to the Crown);
- Cancelling VAT registration;
- Any money remaining in the company’s account will usually be split between shareholders before the bank account is closed.
Three months after the company’s closure, an application can be made to Companies House to have the company struck-off using form DS01. Once the application has been submitted, a copy must also be to company shareholders, creditors, employees and anyone else involved in the company within seven days. The closure will then be publicly advertised by Companies House in the Gazette to ensure there are no third party objections.
If no objections are received, it will usually take a period of between three and four months before the company is removed from the register. When it is, another advertisement will be placed in the Gazette to inform the public of the company’s dissolution.
It takes at least three months for a company to be officially dissolved. However, if the process is complex and some tasks need to be completed to close the company, it will take longer. Once the application to Companies House has been made and advertised in the Gazette, it will take at least three months from that point for the dissolution to be complete.
- The process can be instigated quickly – Once a company is dormant, then the process of strike-off is a quick and easy way to close the company.
- The process is cheap – There is a small cost for submitting the strike-off application form at Companies House. Even if professional assistance is required to complete the dissolution process, the costs are still likely to be considerably less than liquidation.
- There’s no investigation into the director’s conduct – Once a company has been struck-off, there will be no investigation into the director’s conduct. That means there’s no risk of directors being made personally liable for company debts or being disqualified from acting as directors in the future. This will only be the case if the company is restored by a creditor and a winding up petition is issued.
- No requirement to file annual returns and accounts – Once the company has been struck-off there is no need to file ongoing annual returns and accounts. If the company is simply left dormant, accounts and returns will still need to be filed.
- The creditors may object to the application – If the company owes any money to creditors, then they must be informed of the director’s intention to have the company struck off. If a creditor does object, then dissolution may not be allowed, and the directors will have to find another way to close the company.
- Outstanding debts cannot be written off – The company dissolution procedure does not allow any debts to be struck off. If the company is dissolved with outstanding creditors, they can apply for the company to be restored for up to 20 years. They can then take enforcement action against the company for the repayment of the debt.
- Dissolution does not terminate leases – A dissolution cannot terminate leases, hire purchase agreements or contingent liabilities. Instead, receivership, administration, creditors’ voluntary liquidation (CVL) or a company voluntary arrangement (CVA) will need to be used.
- There is no prescribed process for the distribution of assets to creditors – That means the process could be open to abuse and mistakes could be made. If errors are made, the company can be restored to the Companies House register and creditors can take enforcement action.
MVL and CVL Comparison
One of the key differences between dissolution and a members’ voluntary liquidation (if solvent) or a creditors’ voluntary liquidation (if insolvent) is the fact that in a dissolution, the company remains under the directors’ control. In an MVL or CVL, control of the company is handed to a liquidator. It is their job to sell the assets of the company and distribute them to the shareholders and creditors. The liquidator charges a fee for their work which is paid out of the company’s assets in order of priority behind the secured creditors. This increases the cost of the closure and reduces the return to creditors and shareholders.
In the case of an MVL, the directors must sign a declaration of insolvency before they can enter into the process. This asserts that all debts will be paid within 12 months of the company’s closure. In a CVL, directors can also be made personally liable for the insolvent company’s debts if they are found guilty of wrongful or fraudulent trading during the liquidator’s investigation of the directors’ conduct. This investigation does not take place in a dissolution.
In the event of an MVL, there’s also the risk that unforeseen issues could lead to spiralling costs and cause the company to slip into a creditors’ voluntary liquidation. During the dissolution process, if problems are encountered, the process can simply be abandoned without any additional costs being incurred.
Once a CVL or MVL has been completed, the company will be closed as long as there has been no misconduct on behalf of the directors. In the case of dissolution, a company could be reinstated by a creditor and enforcement action taken for up to 20 years after the company has been dissolved.
Striking-off a company online
The form you need to complete and submit to have your company struck-off the Companies House register (form DS01) is available online, but Companies House will only accept it in paper form. That means it must be printed out and returned to a physical address. However, if for any reason the completed form if is rejected, for example, if the registration number has been entered incorrectly, the form will be returned to you along with instructions about how to resubmit the form online. An additional £8 fee will be charged for resubmission.
Dissolving a company that never traded
Dissolving a dormant company i.e. a company that never traded, is a simple process. All you need to do is to complete form DS01 and send it to Companies House. As a courtesy, it is also advisable to send a letter to HMRC’s Corporation Tax office to explain that the company never traded and will shortly be struck off the Companies House register. This is simply to avoid any confusion as HMRC assigns a Corporation Tax reference number to every company when it is created. This number should be included in the letter.
Avoiding tax penalties when closing a company
Any company that files late accounts with Companies House will be liable to pay a penalty fee. The size of that penalty will depend on how late the accounts were filed. For limited companies, the penalty will be £150 for accounts filed one month late, rising to £375 for those 1-3 months late. However, Companies House will usually accept the dissolution and allow the company to close without paying the fine.
In the case of tax penalties, HMRC has the power to block a company’s attempt to strike itself off the Company House register if there are unpaid taxes, penalties or interest owed. It can then take enforcement action to recover these liabilities. In reality, the cost of taking this action means any liabilities would have to amount to several thousands of pounds to justify the expense. Once the strike-off has been concluded, any remaining tax penalties will die with the company.
Dissolving a Company with debts
If your company is starting to accumulate debt, you may think dissolving the company could be one way of avoiding repayment. However, dissolution is only a viable option once the debts have been repaid. The course of action you will need to take depends on the company’s ability to repay them:
If the company can pay its debts…
…then it is possible to dissolve the company as long as certain steps are followed. Firstly, director’s loans and every creditor would need to be repaid. From that point, the company closure process listed in the ‘Process’ section of this guide should be followed. That is, the company must cease trading, assets should be realised, and the company’s accounts must be filed. Once the company has been dormant for three months, it can then apply to be struck-off the Companies House register.
If the company cannot pay its debts…
… then there are two options it can explore a creditors’ voluntary liquidation (CVL) or an administrative dissolution. If the company has assets that can be sold for the benefit of the company’s creditors, a CVL will usually be the best option. In this case, a liquidator will be appointed to take control of the company and keep it running while the assets are sold. Once the debts are paid, it can then be closed down.
If the company doesn’t have any assets that can be sold or there aren’t any funds to pay for liquidation, an administrative dissolution could be a better route. In this instance, an insolvency specialist would help the director to clear any outstanding debt before the company applies to be struck-off the Companies House register. This is typically the cheaper of the two options.
A voluntary dissolution cannot be used unless all of the conditions listed at the top of this guide are met. It is a criminal offence to try and strike off/dissolve a company with the knowledge that there are creditors involved and you do not take steps to notify them of your decision/actions.
As well as the suitability of the dissolution process, you also need to think about the costs of each procedure when determining the best way to close your company. That includes the tax implications of all the methods we have discussed.
With practical experience in a wide range of industry sectors, we can advise you of your options when closing a solvent or insolvent company. Please get in touch with our team today for free, confidential advice on the most appropriate route for you to take.