Company strike off is something a director can choose, or which is forced upon a company as a compulsory action.
This article will explain exactly how strike off works, when it’s appropriate to use it. and what are the risks involved if you do.
What is Company Strike Off?
What does strike off mean for a company?
A company strike off 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.
There are two types:
- A Voluntary Strike Off is where the directors choose to dissolve the company ((GOV:UK “Companies House Voluntary Strike Off”))
- A Compulsory Strike Off 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”))
Dissolving a company, sometimes call company stike off or dissolution, can be a simple, cost-effective way to close down a solvent company with no assets. In all cases, it is advertised in The Gazette, which is the official journal of public record.
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.
Why Apply to Strike Off and Dissolve 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 Striking off Process?
(1) Obtain Form DS01
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” )).
(2) Inform Interested Parties about the Proposal to Strike off the Company
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
(3) Settle Fees
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.
What’s the Timeframe for Company Strike Off?
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.
Is a Company Strike Off a solution for an Insolvent Company?
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.
Objections to Company Strike Off
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.
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 Happens to Directors When a Company is Dissolved?
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 for directors 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.