Striking Off a Limited Company: A Guide
Dissolving a company, also known as striking off, can be a simple, cost-effective way to close down a solvent company with no assets. Dissolving a company 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 for your limited company.
What does Striking Off Mean For a Company?
Dissolving a company is the process of removing the details of your limited company from the Companies House register. Once the company name is removed from the register, it no longer exists.
Importantly, only companies that are solvent can be dissolved. If there are any debts then they must be paid in full before the company can be struck off. Any company that is undergoing an insolvency procedure has been threatened with liquidation or has a creditor agreement such as a Company Voluntary Arrangement cannot be struck off.
Why Would a Company be Struck off or Dissolved?
There are a number of different reasons why a business owner might voluntarily decide to bring their company to an end. Here are a few common examples:
To retire – It’s often the case that a business owner wants to retire and there is no natural successor either from the family or the existing management team. That leaves them with little choice but to close the business. 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. To focus on a new Challenge
Rather than retirement, many business owners want to close an existing business so they can focus on something new. If the existing business is viable, selling it as a going concern is certainly an option to consider. If that’s not possible, you can apply to Companies House to have it struck off. Once the company is dissolved, any remaining assets will go to the Crown, so make sure you get everything in order before you apply.
To Reorganise a Group of Companies – Sometimes a company is no longer needed. Following a reorganisation of a group of companies, a business 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.
It lacks Profitability –If a company is not making enough money to be worthwhile or there is insufficient profitability to develop or grow the business effectively, applying to strike off the business could be a sensible option.
There’s Conflict Between the Directors – Disagreements between company directors and shareholders are one of the most common problems businesses face. If differences in the direction the business should go, the directors’ roles or the products the business should offer cannot be resolved, dissolving the business may be the only option.
The idea never gets off the Ground – Sometimes a company never receives the backing it needs or gets off the ground in the way the owner(s) had hoped. If there’s no chance for your products or services then dissolution could be the last resort. If your fortunes could change in the future then you should consider keeping the company dormant. As long as you file an annual return and company accounts each year then it can be kept going indefinitely, removing the expense of restoring a dissolved company.
There are Challenges on the Horizon – The business might be solvent now but there could be challenges on the horizon, such as new market entrants or falling sales, which mean it’s the right time to call it a day. 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 Does it Mean When a Company has Been Struck off the Register and Dissolved?
Once a company has been struck off or dissolved, it is removed from the Companies House register and it cannot trade, sell assets, make payments or be involved in any other business activities. If it does then there could be serious legal repercussions, including financial penalties, personal liability for company debts and a directorship ban for up to 15 years.
Any cash and assets that have not been distributed before the company is dissolved are transferred to the Crown via ‘bona vacantia’. To get those assets back, the company may need to go through the process of restoring the company.
After it has been struck off, the business name becomes available for new companies to use. If you want to restore the company for any reason then you may have to find a different company name.
What Happens to Debts Once a Company is Struck Off?
Where you apply to Companies House for a company strike off with existing debt to HMRC, you may see what is called an Objection to Company Strike off, meaning you cannot complete the Companies House striking off procedure until the objection is resolved. Part of the difficulty is you will not know which creditor has objected as Companies House will not tell you and it does not show anywhere. HMRC, as a rule of thumb, generally object to most applications to strike off if they have not been notified by the company to strike itself off.
When a company is insolvent it may sometimes be possible for the Strike Off to be approved by Companies House. This does not mean Companies House approves of striking off insolvent companies. Companies House make very clear on their website that striking off should not be seen as a cheap alternative to insolvent liquidation. The striking 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 legally provable debts, 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 and have the directors investigated.
NB: If you strike the company 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 is entirely possible.
What Happens to Overdrawn Directors Loans During Dissolution
If the director owes the company money at the time of dissolution, the Bono Vacantia law states that the debt, as an asset of the company, therefore, passes to the Crown via the Treasury Department.
How Long Does it Take To Strike Off a Company?
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, then assuming all the details are correct and there are no problems, 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 from interested parties during that time, another notice will be published and the company will be dissolved.
Have You Received A Strike Off Notice or Warning of Strike of Action?
In some cases, striking off a company is not a voluntary procedure, but something instigated by Companies House. The Companies Act 2006 (S1000) 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 ‘Strike of Notice’ in the Gazette, the official journal of public record. This notice will state that, unless reason to the contrary is demonstrated, the 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 notice to that effect will be published in the Gazette, after which point the company will be dissolved.
Compulsory Strike off Consequences
As stated above, not every company dissolution is 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 for directors of companies dissolved in this way. That includes:
- 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;
- 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 could be disqualified from acting as a director for a period of up to 15 years;
- If the company does continue to trade then the company directors and shareholders will be doing so without the protection of limited liability and could be held personally liable for company debts.
Company Strike off Dissolution and Restoration
If you want to restore a dissolved limited company then you will have to apply to Companies House for administrative restoration using form RT01. To be eligible for administrative restoration, the following must be true:
- You were a director and/or shareholder of the company when it was dissolved;
- The business was trading or operating when it was struck off;
- The application must be made within six years of the date it was dissolved.
If these conditions are not met then a company can be restored via a court order. This is a process that can be used by interested parties such as creditors, suppliers and employees as well as shareholders and directors of the company when it was dissolved. For example, a creditor may restore a company using a court order so a debt can be paid.
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 your 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 I Strike off a Company which Never Traded?
Yes. A company that never traded is an example of a dormant company. Dormant companies can be dissolved using the process described above.
Striking off a Company 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’. Bona vacantia literally means ‘vacant goods’ and is the technical term to describe the process by which undistributed assets pass to the Crown.
That’s why it’s so 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 you are a former member, shareholder or creditor of a company and you want to get an asset back from the Crown you will have 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, if you were a shareholder of the former company, you may be able to apply for a discretionary grant. That allows sums of money to be recovered without having to make an application for the company to be restored.
How can we help?
Is now the right time to dissolve your company? Perhaps you’d like to find out more about the strike off process or want some help understanding your options? For confidential, no-obligation advice, please get in touch with our team.