Company Strike Off: A Step-by-Step Guide
Striking off is the process of removing a company from the Companies House register, effectively dissolving the company and ending its legal existence. This can be done voluntarily or be imposed upon a company, depending on the circumstances.
This document aims to provide a comprehensive guide, including the legal requirements and process, eligibility criteria, implications for directors, and options for restoration.
We’ll also cover the differences between voluntary and compulsory strike-off and the most appropriate ways to close your limited company.
Whether you’re considering striking off your company, have received a strike-off notice, or simply want to understand the process better, this guide is designed to provide you with the information you need to make informed decisions about your business.
NB: the process is only suitable for a solvent company that hasn’t traded in three months or more. If your company is insolvent, please do get in touch to discuss how we might help close your company via other methods. Our free directors’ helpline will put you in touch with an expert.
- What does Company Strike Off Mean?
- Why Apply to Strike Off and Dissolve a Company?
- What Actions Should be Taken before Strike Off?
- What is the Striking Off Process for a Limited Company?
- How Long does Striking off a Company Take
- How much does it cost to strike off a company?
- Is a Company Strike Off a Solution for an Insolvent Company?
- Objections to Company Strike Off
- What Happens to Directors When a Company is Struck Off?
- Can a struck-off company be reinstated?
- Strike Off Alternatives for Insolvent Companies
- Strike off alternatives for solvent companies
What does Company Strike Off Mean?
A company strike-off sometimes referred to as dissolving a company, is the process of removing a limited company from the Companies House registerTrusted Source – GOV.UK – Strike off your limited company from the Companies Register.
Once the company name is removed from the register (using Form DS01), it no longer exists.
There are two types of Company strike Off:
- A Voluntary Strike Off is where the directors choose to dissolve the company. A company can only be lawfully dissolved where it is solvent and has paid all debts.
- A Compulsory Strike Off is when another party – usually Companies House – petitions to have the limited company struck off – note that only solvent companies can be dissolved. If there are any outstanding debts, they must be paid in full before the company will be dissolved.
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.
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 cannot grow 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. Dissolving the business may be the only option if it cannot be resolved.
- 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, and then the company can be kept dormant. As long as an annual return is filed along with company accounts, 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 Actions Should be Taken before Strike Off?
|Actions to Take Before Striking Off|
|1. Complete all outstanding work and collect any revenue you’re owed|
|2. Make necessary staff redundancies. Pay their final wages, and statutory entitlements|
|3. Sell company assets and inventory, and distribute the proceeds among the shareholders|
|4. Prepare final accounts and a company tax return, and submit them to HMRC and Companies House.|
|5. Pay any outstanding tax liabilities to HMRC|
|6. Ask HMRC to close down the company’s payroll scheme|
|7. Deregister for VAT, if applicable|
|8. Settle the company’s outstanding debts|
|9. Close any company bank accounts|
|10. Transfer website domain names and terminate any remaining monthly services, such as utilities|
What is the Striking Off Process for a Limited Company?
(1) Ensure you have everyone’s agreement
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 is 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. At this point the strike off application becomes an Active Proposal to Strike Off. 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:
- 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 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 an acknowledgement of Active Proposal to Strike Off status 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.
How much does it cost to strike off a company?
For a voluntary strike-off, the cost is usually the Companies House fee of £10, plus any legal or professional fees if you choose to use a third-party service to assist with the process.
In the case of a compulsory strike-off, the company has no direct costs. However, legal or professional fees may be associated with responding to a strike-off notice or addressing any outstanding compliance issues.
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: to send all company creditors the DS01 form before 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 be 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 Struck Off?
Once the company is struck off the register, there is no company and, therefore, no directors. Directors should therefore take immediate action in the case of strike-off action if this is something you don’t wish to happen.
Can a struck-off company be reinstated?
A struck-off company can be reinstated in two ways.
If a company was voluntarily struck off, it may be reinstated within six years of the striking-off date by applying to the Registrar of Companies and providing evidence that the company was carrying on business or was otherwise active at the time of striking off.
This process is known as ‘administrative restoration’, and the application must be made by a former director or shareholder of the company.
The second way for a limited company to be restored is at the request of a creditor. If a creditor discovers that a business that owes them money has been struck off, they can apply for a court order to restore it to the register. They could then potentially follow the restoration up with a winding-up petition to force the company into liquidation.
Strike Off Alternatives for Insolvent Companies
If your company is insolvent and you have realised that striking off is not an option, some alternatives can help address the financial difficulties and protect the interests of creditors. Here are some options to consider:
- Company Voluntary Arrangement (CVA): A CVA is a formal agreement between a company and its creditors to repay debts over a period of time. It can help to avoid liquidation or bankruptcy by allowing the company to continue operating while it restructures its debt.
- Creditors’ Voluntary Liquidation (CVL): A CVL is a formal process for winding up a company that cannot pay its debts. It involves appointing a liquidator to sell the company’s assets and distribute the proceeds to creditors.
Strike off alternatives for solvent companies
A Members’ Voluntary Liquidation (MVL) is a valid alternative for a solvent company with at least £25000 in cash and assets.
The tax benefits of an MVL arise from the fact that distributions to shareholders are treated as capital rather than income for tax purposes. This means that the shareholders may be eligible for capital gains tax (CGT) rather than income tax on the distribution. CGT rates are generally lower than income tax rates, which can result in significant tax savings for shareholders.
Additionally, if the company qualifies for Business Asset Disposal Relief (Entrepreneurs’ Relief), shareholders may be eligible for a reduced rate of CGT of 10% on the distribution, subject to certain conditions. This can further increase tax savings for shareholders.
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The primary sources for this article are listed below, including the relevant laws and Acts which provide their legal basis.
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- Trusted Source – GOV.UK – Strike off your limited company from the Companies Register