Striking a company off the Companies House Register, a process known as dissolution, is usually a voluntary decision made by the shareholders and/or directors of the company.
They will decide to dissolve the company if they have no further use for it, for example, if they want to retire or the company is a dormant subsidiary of a wider group.
However, it’s also possible for a limited company to be forcibly struck off the Companies House Register.
Below, we’ll explore why this might happen and what you can do about it.
Legal Definition of Compulsory Strike Off
Under Section 1000 of the Companies Act 2006, if the Registrar of Companies at Companies House has reasonable cause to believe that a limited company is not carrying on business or in operation, he or she can begin the process of forcibly removing it from the Companies House Register.
Once a limited company has been removed from the register, it will cease to exist as a business entity.
Why Would a Company be Struck Off?
Why would a company be forcibly struck off the Companies House Register?
In a process known as compulsory strike off, the Registrar of Companies removes the company from the register using its own statutory power. Nobody petitions for it. The registrar may start the process when it has reasonable cause to believe the company is not carrying on business or in operation, most often because accounts or confirmation statements are overdue. Creditors cannot start it, but they can object to it or petition the court to wind the company up.
Common triggers include:
- Failing to submit your annual confirmation statement (Form CS01)
- Failing to file accounts on time
- Failing to notify Company House about a change to your official regsitered office address
If a company has ceased trading, the directors may allow it to be forcibly struck off the register as a quick and inexpensive way to close it down.
Directors of businesses that have suffered a downturn or are approaching insolvency may fail to submit annual accounts as a symptom of the company’s general decline.
That can lead to the initiation of the compulsory strike off procedure. If the directors do not act and let the struggling company be removed from the register, those who were also employees will usually lose the simplest route to statutory redundancy pay and other entitlements, because those claims normally depend on the company entering a formal insolvency procedure such as liquidation. They may also face serious consequences such as director disqualification and personal liability issues.
Companies House Compulsory Strike off Process
The first step in the compulsory strike off process is for the Companies Registrar to write to the company asking whether it is still carrying on business, often because its annual accounts and/or confirmation statement are overdue. If there is no answer within 14 days, a second letter follows, warning that a strike off notice will be published in the Gazette unless the company answers within a further 14 days.
A change in the registered address of a company can mean the directors do not receive these warnings. However, Companies House must have reasonable cause to believe the company is not carrying on business or in operation before it can be struck off.
First Gazette Notice for Company Strike Off
If Companies House receives no reply to its letters, it will then publish a first ‘strike off notice’ in the Gazette, which is the official journal of public record.
This is known as the ‘First Gazette Notice for Company Strike Off.’
That will declare that the company is to be struck off the Companies House Register and cease to legally exist in two months. That gives the company directors, its shareholders and creditors such as suppliers and HMRC a two-month window to object to the strike off.
If no objections are received from a third party or the directors/shareholders, the company will be struck off the register and will cease to exist.
As a company director or shareholder in one or more limited companies, it pays to be vigilant. We recommend subscribing to notification services from the Gazette to ensure you don’t miss a strike off notice that’s issued against your business. If you act quickly, that will buy you the time you need to prevent your company from being struck off.
Timeframe
From receipt of the first letter from Companies House to the company being struck is likely to take around four months.
If directors don’t reply to the initial warning letters from Companies House, they have just two months from the time the first strike off notice is published in the Gazette to stop the strike off. After that, a former director or shareholder can still apply to Companies House to restore the company within six years of dissolution if the conditions are met, or ask the court to restore it, but restoration is slower and costlier.
This process was shortened on 10 October 2015. Directors used to have three months following publication of the strike off notice to object to the striking off, and one month rather than 14 days to answer each Companies House letter.
The reduced timeframe to prevent striking off means it’s now crucial that directors file their annual accounts and confirmation statements on time.
What are the Consequences of Compulsory Strike Off?
If you fail to respond to warnings from Companies House, your business can be struck off the Companies House Register even if it’s still trading. That can have serious consequences, including:
- The company will cease to exist as a legal entity.
- The undistributed assets of the company and any cash will become ‘bona vacantia’, or ‘ownerless property’, and ownership will automatically transfer to the Crown.
- The business will be unable to secure finance to rescue the situation.
- Future contracts with customers and suppliers will be jeopardised.
- Directors of a dissolved company can be investigated by the Insolvency Service, which could lead to a disqualification from acting as a company director for a period of up to 15 years. Investigation is not automatic in every case, but it is a real risk once the company is gone.
- Once dissolved, the company no longer exists and cannot lawfully continue trading. Anyone who carries on the business in its name — typically the former directors — does so outside any company at all, and can incur personal liability for the resulting debts.
What are Your Options if your Company is served with a ‘Gazette First Notice’ Letter?
In the first instance, if you receive a formal letter from Companies House asking for company accounts or your confirmation statement to be filed and you want to continue trading, you should respond immediately. By doing so and providing the information Companies House has asked for, you’ll be able to prevent further action.
If the process has progressed to the point where a strike off notice has been issued against your company, the action you take will be determined by your plans for the company going forward.
- You’re happy for the company to close
If you no longer have a need for the company and are happy for it to be closed down, you could simply allow the process to run its course. That is only an option if you have no debts or liabilities outstanding, have ceased trading and have realised the company’s assets.
Failure to repay all the creditors before the company is struck off could lead to the company being reinstated by a creditor to face formal liquidation proceedings. That risks an investigation by the Insolvency Service into your running of the company, with any wrongdoing potentially leading to your disqualification as a director and personal liability for company debts.
- You want the company to remain active
On the other hand, if you want the company to continue trading, you should send a suspension application to Companies House. Depending on what prompted the strike off notice in the first place, you may be required to file missing accounts or confirmation statements to bring your account up to date. If your application to suspend the strike off is successful, your company will remain active and continue to trade as usual.
Under What Circumstances can Creditors Object to a Compulsory Strike Off?
It’s not just the directors and shareholders who can object to the involuntary striking off of a company. It may also be in the interests of company creditors such as HMRC to object to its striking off. Creditors are likely to want to object to the strike off and have it suspended so they can recover the money they are owed before the company is closed.
If the company is removed from the Companies House Register, any remaining creditors will have to write off the money they are owed as a bad debt or apply to reinstate the company via a court order, which can be a time-consuming and costly process. Strike off does not end any personal liability of the directors, such as under a personal guarantee, which can still be enforced.
What if Your Company has Assets?
If you have assets or cash in your company that you want to retain ownership of, you will need to extract those assets before the company is dissolved or ownership will be transferred to the Crown.
To do that, the company must deal with the assets itself before it is dissolved. It can transfer them, or sell them and distribute the money to the shareholders. It should pay its creditors first, and it can distribute only what the law allows. Showing cause against the strike off stops the registrar striking the company off, but it does not itself deal with the assets.
However, depending on the value of the assets involved, it may make more financial sense to close your business another way. Liquidate the company via a members’ voluntary liquidation (MVL) may allow you to realise the assets and close the business in a more tax-efficient way.
What if the Company is Insolvent?
If the company has debts it cannot afford to repay i.e. it’s insolvent, you might feel like a compulsory strike off is an effective way to close the company down without having to repay its debts.
However, waiting to be struck off by Companies House is a dangerous route to take that could have serious repercussions for its directors.
In this situation, HMRC or any other creditors can either object to the compulsory strike off or apply to reinstate the company to the Companies House Register if it has already been struck off.
They can then force it into compulsory liquidation in an attempt to reclaim the money they are owed. That will result in a thorough investigation of the business that could lead to a director disqualification and personal liability for company debt.
If your company is insolvent, the safer route to take is to enter into creditors’ voluntary liquidation (CVL). In that case, a licensed insolvency practitioner will be appointed to close the company down and realise the assets for the benefit of its creditors. They’ll also advise you whether, as a director who was also an employee, you’re eligible for director redundancy payments from the Insolvency Service’s Redundancy Payments Service and other entitlements.
Compulsory Strike Off Discontinued
If you receive a letter stating this it bears the usually happy news that the threatened strike off is not happening.
Clearly, you’ve taken the appropriate actions – usually something as simple as filing a confirmation statement – which means your company can live on for another day.
The letter will usually say something along these lines:
“Cause has been shown why the company (insert company name) should not be struck of the register and accordingly the Registrar is taking no further action under section 1000 of the Companies Act 2006.”
Need Advice?
Has your company been issued with a Gazette notice for compulsory strike off?
If you’d like advice to keep your business trading or want to discuss the most appropriate way to close your company given its financial situation, we can help. Please get in touch with AABRS®
for your free, no-obligation consultation today.