Dissolving a company, also known as company srike off or dissolution, can be a simple, cost-effective way to close down a solvent company with no assets.
Striking off allows the directors to retain full control of the business throughout the process and, although creditors must be repaid before the closure, there is no requirement to hold a formal creditors’ meeting.
This article will explain company dissolution in detail, covering all the key points if this is something you’re considering.
Company Strike Off: Definition
Striking off a company is the process of removing the details of your limited company from the Companies House register GOV:UK “Apply for Company Strike Off”. Once the company name is removed from the register using Form DS01 GOV:UK “FORM DS01”, it no longer exists.
- Voluntary Strike Off – Where the directors choose to dissolve the company GOV:UK “Companies House Voluntary Strike Off”
- Compulsory Strike Off – This is when another party – usually Companies House – petitions to have the limited company struck off – note that only companies that are solvent can be dissolved. If there is any outstanding debt then they must be paid in full before the company will be struck off. This process has now restarted after a pause because of the Covid-19 pandemic GOV:UK “Companies House Restarts Compulsory Strike Off”
Why Strike Off a Company?
There are a number of different reasons why a company’s directors might voluntarily decide to bring their company to an end, such as:
Directors’ retirement – If there is no natural successor either from the family or the existing management team, there may be little choice other than to close the limited company. The business owner can apply to strike off the company as long as it is solvent and has not traded, sold any property rights or changed names in the previous three months.
A new challenge – A company director may want to close an existing business to focus on something new. If the existing business is viable, selling it to an interested party is an option to consider. But, if that’s not possible, directors may apply to Companies House to have it struck off. Once dissolution has taken place, any remaining assets will go to the Crown, so make sure all is in order before applying.
To reorganise a group of companies – A business may end up as being superfluous to needs. Following a reorganisation of a group of companies, a limited company may be just a shell, with its assets having been transferred elsewhere. In that case, striking off is a cost-effective way to close it down.
Unprofitability – If a limited company is not making enough money to be worthwhile and it cannot be grown effectively, applying for a company strike off the business could be a sensible option.
Conflict between directors – Disagreements between the company directors and shareholders are common problems. If they cannot be resolved, dissolving the business may be the only option.
Failure to get off the ground – Sometimes a company never receives the backing it needs or gets off the ground in the way the owner(s) hoped. Dissolution may be the only route or it may come right in the future, then the company can be kept dormant. As long as an annual return is filed along with company accounts, then it can be kept going indefinitely, removing the expense of restoring a dissolved company.
Future challenges – The business might be solvent now but there could be challenges on the horizon, such as new market entrants or falling sales. It may be impossible to find an interested party to facilitate a sale. If the company has high-value assets then a Members’ Voluntary Liquidation (MVL), which treats all distributions as capital rather than income, could be more tax efficient than a dissolution. If there are few assets then applying to strike off the company will be the easier way to close it down.
What’s the Process of Company Strike Off?
The process of striking off a limited company is relatively simple and applies for a public limited company, a private limited company, or a limited liability partnership (LLP). As explained, directors should use Form DS01 or use the government’s online service – GOV:UK “Online Strike Off” .
Informing Interested Parties
You’ll need to tell the following ‘interested parties’ about your intention to strike off.
- members (usually the shareholders)
- managers or trustees of any employee pension fund
- any directors who didn’t sign the application form
Form Ds01 costs just £10 to submit via paper, or £8 to submit online.
You’ll need to pay this money personally as sending money from the company bank account classifies as trading.
It takes at least three months for a limited company to be struck off the Companies House register. Once the completed DS01 form has been submitted and assuming all the details are correct, Companies House will send acknowledgement in the post.
A notice will then be published in the London, Edinburgh or Belfast Gazette (depending on where the company is based) giving three months’ notice of the intent to strike off the company. If no objections are received by the company director from interested parties during that time, another notice will be published and the company will be dissolved.
What Happens with Striking Off if There are Debts?
HMRC is clear a company cannot be struck off if there are debts. Creditors are likely to object to a strike off and this will mean the procedure cannot be completed until this is resolved.
Directors may not know which creditor has objected and Companies House will not provide the details. HMRC may well be the most likely to object if they have not been notified and agreed to this.
Companies House make it clear that striking off should not be seen as a cheap alternative to insolvent liquidation. The company strike off procedure assumes the directors or company accountants have followed the correct process which is to send all company creditors the DS01 form prior to dissolution, alerting them to the intention to strike off. If this part of the procedure is not followed it can lead to serious potential problems in the future.
In the case where a company has been officially struck off but has outstanding debt, the creditor has the right to apply to have the company restored to the Register. After this point, the creditor can petition to have the company wound up through formal insolvency proceedings and have the company director investigated.
If a company is struck off and the company has HMRC debt, there are no time restrictions on HMRC’s ability to chase money owed to them. In addition, penalties can be backdated to the time the tax arrears started. Should the debt be substantial and be a VAT or PAYE/NIC liability then a fraud investigation by an insolvency practitioner is possible.
What is a Compulsory Strike Off?
In some cases, striking off a company is not a voluntary procedure and be referred to as an ‘Active Proposal to Strike Off.’
The Companies Act 2006 (Section 1000) GOV:UK “Companies Act 2006” requires Companies House to send at least two late payment notices to the registered company address first, but if these are not responded to the next step will be the publication of a First Gazette Notice for Company Strike Off, which is the official journal of public record.
This notice will state that, unless reason to the contrary is demonstrated, the limited company will be struck off the register two months from the date of the publication of the notice. Once it is struck off the register, another gazette notice will be published, after which point the company will be dissolved.
Consequences for Directors
Company dissolutions are not always voluntary. If directors do not file their accounts and fail to reply to warnings from Companies House, businesses can be struck off the Companies House register and will cease to exist, even if they are still trading. There can be serious consequences that include:
- The company will cease to exist as a legal entity from the date of dissolution
- The assets of the company will become the property of the Crown (Bona Vacantia)
- Banks will be unwilling to provide finance and future contracts with customers and suppliers will be at risk
- The directors of companies that have been struck off involuntarily from the Companies House Register and could be disqualified from acting as a director for a period of up to 15 years
- If the limited company does continue to trade then the company directors and shareholders will be doing so without the protection of limited liability and could face legal action and be held personally liable for outstanding debt.
How to Strike off a Dormant Company
A dormant company is one that has registered with Companies House but has never generated an income or carried on any trading activity of any kind. Companies can be dormant from the date of their incorporation or they can become dormant after a period of activity.
A company can remain dormant for any length of time but it does have to fulfil a number of statutory obligations to avoid being involuntarily struck off. That includes:
- Informing the local corporation tax office that the company is dormant as soon as possible
- Filing annual returns and dormant accounts
- Keeping up-to-date records
- Reporting changes to the registered company’s details.
A company director can choose to voluntarily strike off a dormant company at any time as long as it has not traded, changed names and is solvent. To do so, form DS01 must be completed, signed and dated by all the company directors or the majority of the directors if there are three or more. If the company traded previously, you also need to inform HMRC and settle any tax and creditor liabilities.
Companies House will review the striking off application and send confirmation by post if everything is as it should be. A notice will then be published in the Gazette giving three months notice of your intention to strike off. If no objections are received, the company will be struck off, a further notice will be published in the Gazette and the dormant company will cease to exist.
Can a Company That Never Traded be Struck Off a Company?
This is possible – a company that never traded is an example of a dormant company. Dormant companies can be dissolved using the process described above.
What is Bona Vacantia?
If a company is struck off before its share capital or company assets have been distributed then it becomes the property of the Crown by virtue of ‘Bona Vacantia’ GOV:UK “Bona Vacantia” . Bona vacantia means ‘vacant goods’ and is the technical term to describe the process by which undistributed assets pass to the Crown.
This is why it is important for company members to make sure any assets are dealt with and transferred out of the company’s ownership before it is dissolved. One of the biggest risks of a compulsory strike-off is that the company is dissolved before the members have had the opportunity to distribute the assets and share capital.
If there is a demand for a return of an asset from the Crown, then it will be necessary to try and restore the company. Restoring the company removes bona vacantia so it has ownership of the asset once again. However, if the Crown has disposed of the asset then you will be paid whatever the Crown received from the sale, minus the costs incurred while realising the asset.
Alternatively, a shareholder of the dissolved company may be able to apply for a discretionary grant. This allows sums of money to be recovered without having to make an application for the company to be restored.
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