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?

A company strike off, sometimes referred to as dissolution, is the process of removing a limited company from the Companies House register [1]GOV:UK “Apply for Company Strike Off. Once the company name is removed from the register using Form DS01 [2]GOV:UK “FORM DS01, it no longer exists.

There are two types of Strike Off:

  • A Voluntary Strike Off is where the directors choose to dissolve the company [3]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 [4]GOV:UK “Companies House Restarts Compulsory Strike Off

Dissolving a company 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.

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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.  

How to Strike Off a Limited Company?

(1) Ensure you have everyone’s agreement to Strike the Company Off

Before you start closing down a limited company you need to get the agreement of the company’s directors and shareholders. That can be done by arranging a board meeting to pass an ordinary resolution in writing to apply for the company to be struck off. Minutes of the meeting should be taken that state the company has paid or will pay all its outstanding debts or obligations and a Declaration of Solvency will need to be signed by the company directors.  

(2) Collect any outstanding debts and pay creditors

You should attempt to collect any remaining payments before announcing your intention to close the business. If you don’t, some debtors may try to delay paying you the money they owe. Offering discounts for the immediate repayment of ageing receivables or selling payments you are struggling to collect to a factor could speed up the process.  

(3) Complete all outstanding work

All work must be completed and any money you owe should be paid to your creditors. If you have outstanding contracts with customers then they must be fulfilled or an early termination should be negotiated. You will be held personally liable for any work not completed or creditors who make claims for payment once the company has been dissolved, so you must make sure all this resolved.

(4) Sell any assets and inventory

If you have any remaining stock then now is the time to sell it. You should also sell company assets so you can pay all debts, taxes, employees and loans before distributing any remaining money to the owners.

(5) Inform HMRC you plan to Strike Off

Now you need to advise HMRC of the impending closure by submitting a final set of accounts and a company tax return along with letters confirming the situation from shareholders and directors. If the directors and shareholders are one and the same then a single letter will suffice.

The final balance of PAYE, NI, Corporation Tax and any other tax liabilities should be paid to HMRC and you should deregister for VAT if relevant. You should also pay any staff their final wages and salary before asking HMRC to close down the company’s payroll scheme.  

(6) Submit the Striking off a Company Form DS01

The next job is to send the resolution and the Declaration of Solvency to Companies House within 15 days of it being passed. You should also complete and submit form DS01 along with a £10 filing fee. This must be signed by all directors or the majority of directors if there are three or more.

On receiving form DS01, Companies House will check everything is correct and provide confirmation in the post. A notice will then be published in the London, Edinburgh or Belfast Gazette (depending on where the business is based) giving three months’ notice of the intent to strike off and inviting objections from interest parties.  

(7) Notify interested parties of the Company Strike Off

You must send a copy of form DS01 to all interested parties within seven days of it being sent to Companies House. That includes:

  • Employees
  • Shareholders
  • Company creditors
  • Any directors who did not sign the original form
  • Managers or trustees of any pension fund created for employees

(8) Tie up any other loose ends

Now is the time to tie up any other loose ends. That includes closing your business bank accounts, cancelling any licenses you may have, transferring website domains and bringing utilities and any other monthly services to an end.

(9) The company is dissolved

If there are no objections to the notice in the Gazette after three months then a further notice will be published confirming the dissolution of the company. The company will then cease to exist.  

(10) Liability of directors’ continues

Although the company no longer exists, the liability of every director, officer of the company and shareholder continues and the Court may reinstate the company if any creditor claims are made. At this point, if the company trades, changes its name, disposes of assets or enters into an insolvency process then the striking off application will be withdrawn.

(11) Any assets not distributed belong to the Crown

Once dissolved, any remaining assets that have not been distributed belong to the Crown.

How long does Striking off a Company Take

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.  

How Do I Notify HMRC

You must notify HMRC within 7 working days of sending your application to the registrar.

(1) Inform HMRC you’re not longer employing people here

(2) Inform Corporation Tax Services by writing to them at:

Corporation Tax Services
HM Revenue and Customs
BX9 1AX
United Kingdom

(3) Submit final accounts and a tax return in the usual fashion but stating that these are ‘final trading accounts’.  

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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.   

References

All Company Debt insolvency content is written by our licensed insolvency practitioners.

The primary sources for this article are listed below, including the relevant laws and Acts which provide their legal basis.

You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy here.

  1. GOV:UK “Apply for Company Strike Off
  2. GOV:UK “FORM DS01
  3. GOV:UK “Companies House Voluntary Strike Off
  4. GOV:UK “Companies House Restarts Compulsory Strike Off