If you want to close down a solvent limited company that has not traded for at least three months, applying to have it struck off the Companies House Register could prove to be a cost-effective alternative to liquidation. In this article, we’re going to explain what striking off means, what the process involves and explore whether it could be a viable way to bring an end to your limited company.
What does it mean to strike off a company?
Striking off is the process by which a limited company is removed or ‘struck off’ the Companies House Register. Once the company is removed from the register, it ceases to exist and can no longer trade, make payments or sell assets. A notice will be published in the Gazette giving interested parties three months’ notice that the company intends to be struck off. If there are no objections during this time, the business will be struck off.
You can commence the process of voluntary strike off if:
- The business is solvent (the company must be able to settle any outstanding debts within 12 months)
- The business has no outstanding legal action against it and is not undergoing a creditor agreement such as a Company Voluntary Arrangement (CVA)
- It has not traded or carried out any activities other than those required to strike off the company in the last three months
- It has not changed names in the last three months
- It has not sold any property or rights owned by the business in the last three months
You can read the full conditions for voluntary strike off in Sections 1004/1005 of the Companies Act 2006.
What happens if my company is struck off?
It will take at least three months from the date you submit the completed DS01 form for your company to be struck off the Companies House register. Assuming you have completed the form correctly and there are no objections from interested parties, you will receive an acknowledgement from Companies House in the post that your company has been struck off.
From that point on, your business will cease to exist. Your business name will be free for other companies to use and you will not be able to be to engage in any business activities without a serious risk of legal repercussions such as financial penalties, a directorship ban and personal liability for company debts.
If the company has any cash or assets that have not been distributed to the shareholders before the company is struck off, their ownership will be transferred to the Crown through a process known as ‘Bona Vacantia’. To get those assets back, you may have to restore the company.
What should a company do before it is struck off?
There are a number of things you should do before you commence the strike off process. They will depend on the size and nature of your business and may include:
- Completing all outstanding work and collecting monies due
- Making staff redundant and paying their final wage along with any other monies due (holiday entitlement etc.)
- Selling company assets and inventory and distributing the proceeds among the shareholders
- Preparing final accounts and a company tax return and sending them to HMRC and Companies House. You should state very clearly that these are the final accounts as the company will soon be dissolved
- Paying HMRC any tax liabilities due (VAT, PAYE, NI or Corporation Tax)
- Asking HMRC to close down the company’s payroll scheme
- Deregistering for VAT
- Paying the company’s outstanding debts
- Closing company bank accounts
- Transferring website domain names and bringing utilities and other monthly services to an end
Why are companies struck off voluntarily?
There are a number of different reasons why a company director might choose to have their company struck off the Companies House Register. Here are a few common examples:
- The directors want to retire – A business owner who has no natural successor and wants to retire might choose to close their business by striking it off. They may want to focus on a new challenge or simply enjoy their retirement.
- A group of companies is being reorganised – Another common reason for voluntary strike off is to reorganise a group of companies, where one business has effectively become obsolete and its assets have been transferred elsewhere.
- The business isn’t profitable – The strike off procedure cannot be used to closed down an insolvent business. However, it can be used to close down a solvent business that is not as profitable as it was hoped and cannot be scaled effectively.
- The directors don’t agree – It’s not unusual for the directors or shareholders of a limited company to have different ideas about the direction it should go in. If there are disagreements that cannot be resolved, striking off could be an option.
- It’s time to call it a day – Although the business might be solvent now, there can be challenges on the horizon, such as changing regulations, a new market entrant or declining sales which make you believe it’s a good time to close the business down.
How much does it cost to strike off a company?
The process itself is very cheap. All you have to pay is a £10 disbursement fee to Companies House when submitting the striking off application form (DS01) offline or £8 when it’s submitted online. That makes it far cheaper than a Members’ Voluntary Liquidation (MVL), the process used to close down a solvent company which has more valuable assets. An MVL typically starts at around £1,500.
Importantly, you must not send a cheque or pay the fee from the account of the company applying to be struck off or it will be classed as still trading.
There are also a number of other costs associated with striking off. As you remain in control of the process, you have to meet all the administrative requirements yourself. You also have to make staff redundant and pay any entitlements they are due, as well as settling debts owed to creditors and HMRC. These all have to be factored into the overall cost.
What is compulsory strike off?
Not all limited company strike offs are a voluntary act by the company directors. In some cases, Companies House can instigate the striking off process. Compulsory strike off typically occurs for non-compliance reasons and is generally the result of repeated failings to file the company’s annual accounts and/or confirmation statement.
It can also be the case that a failure to notify Companies House of a change in the registered business address can lead to the initiation of the strike-off process. However, Companies House must have reasonable grounds to believe the company has ceased trading before it can begin the process.
There can be serious consequences for the directors of companies that are struck off compulsorily. That includes:
- The company ceases to exist as a legal entity
- Undistributed assets of the company become the property of the crown
- The company will be unable to secure funding to rescue the situation
- Future contracts with customers and suppliers will be at risk
- Directors could be disqualified for a period of up to 15 years
- The directors and shareholders could be made personally liable for the business’s debts if they continue to trade
Can you strike off a company with debts?
Companies must be solvent in order to be struck off. If the company does have outstanding debts, they must be repaid in full before the company can be struck off. If the company is currently undergoing an insolvency procedure such as a Company Voluntary Arrangement or has been threatened with legal action such as a winding up petition, it cannot be struck off.
If an application to strike a company off the Companies House Register is rejected due to its outstanding debts and the business cannot afford to repay those debts, it will be viewed as insolvent. In that case, a Creditors’ Voluntary Liquidation (CVL) is likely to be the best course of action.
Can a struck off company be reinstated?
Usually it can, yes. However, having a company reinstated to the Companies House Register is not always a simple process and it may require a court order, depending on how it was struck off in the first place.
In the case of a voluntary strike off, court action will be required to reinstate the company. That will involve a long-winded process that typically costs £500 to £800 plus additional costs and takes around four months. The directors or shareholders might choose to reinstate the company to the register so they can:
- Recommence trading
- Realise an asset
- Pay a claim made against the business (e.g. for a personal injury)
- Complete a lease or property transaction
- Realise pension funds
If the company was forcibly removed from the register, you can apply for administrative restoration. The process can be completed by post and is reasonably simple. You must complete form RS01, make a payment of £100 and pay any other fees or payment penalties the company received. You can apply for administrative restoration if:
- You were a director or shareholder of the dissolved company
- The company was removed from the Companies House Register during the last six years
- The business was continuing to trade up until it was dissolved
Can I stop my company being struck off?
The compulsory strike off process is usually initiated by Companies House in response to a failure to file accounts or an annual confirmation statement. A notice will be published in the Gazette declaring that the company will be struck off in three months and removed from the Companies House Register. During this time, interested parties, including shareholders and directors, creditors and employees can object to the application.
At this point, your next move will depend on your plans for the company. If the business has ceased trading and is no longer active, you might be happy to let the process take its course. If the business has outstanding debts, you should also be aware that an objection to the strike off could come from a third party such as a supplier or HMRC.
Alternatively, you may still be trading or want the company to remain active for some other reason, in which case, you will need to lodge a suspension application with Companies House. Depending on the reason why the compulsory strike off notice was issued in the first place, you may be required to bring your account up to date by filing missing accounts or confirmation statements. If these requirements are met, the company will remain active and can continue to trade as normal.
Common third-party objections to strike off
Any interested party can object to a strike off proposal. One of the most common objectors is an outstanding creditor such as a supplier or HMRC. It is in the interests of company creditors to object to the application, as if the strike off is unopposed and the company is removed from the Companies House Register, the creditor would be unable to recover the debt.
Common-third party objections include:
- The directors have not informed all interested parties of the proposed strike off (members, employees, company creditors, managers or trustees of the company pension fund)
- The company has been trading wrongfully
- The company has not complied with the conditions of the strike off application
- One or more of the declarations on form DS01 is false
- The directors have committed tax fraud or another offence
- Action is being undertaken to recover money owed from the company. For example, action through the small claims court or a winding up petition
If an interested party makes an objection to striking off, which is upheld by the Registrar during the three-month notice period, the strike off will be suspended.
What happens to share capital when a company is struck off?
One of the risks associated with the compulsory strike off process for a limited company is that you will not have the opportunity to realise and distribute the assets and share capital before the company is dissolved. That would leave you in a powerless position once it has been struck off.
Before the company is struck off, whether it’s a voluntary or forced strike off, its share capital, reserves or any other assets should be distributed to its creditors and shareholders accordingly. The maximum value of share capital that can be distributed on strike off is £25,000. If the value of the company’s share capital is greater than that, the company should either be put into voluntary liquidation before the dissolution or the company should take steps to legally reduce its share capital before applying for strike off.
Can a dissolved company be investigated?
It is possible for a company that has been dissolved to be effectively brought back to life by a creditor with a claim against the company and for the conduct of the company directors to be investigated. As the company directors are unlikely to restore the company themselves, it’s most likely to be creditors who will restore the company via the court route.
Once the company has been restored, the creditors could appoint a liquidator to investigate the conduct of the directors. If the liquidator uncovers examples of fraudulent trading, wrongful trading or misfeasance, then the liquidator could bring court action against them. That could lead to the directors being made personally liable for company debts and/or a director disqualification of up to 15 years.
What is the striking off form?
To apply for voluntary strike off, you need to complete form DS01. You can download the form here. You should send the completed form with a £10 cheque to the following address depending on where the business was based:
- English and Welsh companies – Companies House, Crown Way, Cardiff CF14 3UZ
- Scottish companies – Companies House 4th Floor Edinburgh Quay 2, 139 Fountainbridge, Edinburgh EH3 9FF
- Northern Irish companies – 2nd Floor The Linenhall, 32-38 Linenhall Street, Belfast BT2 8BG
Can I strike off my company online?
The fastest way to strike off a company is to apply to do so online. Follow this link to start the strike off process. You have to submit the completed form and pay a reduced fee of £8. You’ll also have to enter the email addresses for the company directors so they can sign electronically to authorise the dissolution. All the directors or a majority of two must sign for the dissolution to go ahead.
How to inform HMRC of company strike off
You need to inform HMRC that you intend to strike off your company, even if the business never traded. If you don’t, there’s a chance HMRC could block the strike off and delay the process. You should also submit a final set of accounts and a company tax return, and pay the final balance of PAYE, Corporation Tax, National Insurance and any other tax liabilities. You should deregister from VAT and ask HMRC to close down the company’s payroll scheme.
To inform HMRC of company strike off, you should send a letter confirming the situation from the shareholders and directors. If shareholders and directors are one and the same, a single letter will be sufficient. Send the letter to:
Corporation Tax Services
HM Revenue and Customs
Can HMRC restore a dissolved company?
HMRC can restore a dissolved company in an attempt to recover a tax liability. However, it is unlikely to do so unless the sums involved justify the costs of the restoration process and it believes or has proof that the dissolved company had a high level of assets before its dissolution.
If the company is restored to the Companies House register by HMRC, a liquidator (the official receiver) will be appointed to recover the debts and action could be taken against you if acts of fraud or misfeasance are suspected.
Can a struck off company be wound up?
A struck off company can only be wound up if action is taken to restore the company to the Companies House Register first. If a winding up order is made against a company that has been struck off, then the usual notices and the advertisement of the winding up order will not be issued. Instead, the official receiver will contact the petitioning creditor to inform them that the company has been struck off. They will advise them to make an application to the court to restore the company if they want the winding up process to continue.
If the petitioning creditor is unwilling to restore the company, the official receiver will consider making an application to the court to do so if there are substantial realisable assets or it’s in the public interest to do so. If the petitioning creditor and the official receiver decide not to restore the company, an application to rescind the winding up order will be made. If the petitioning creditor or the official receiver decide to restore the company to the register, then the winding up proceedings will commence. The liquidator/official receiver will complete their duties and the company director will face a full investigation into their conduct.
What’s the difference between strike off and liquidation?
Applying to have a company struck off the register and dissolved is very different from the process of winding it up via liquidation. Strike off is an informal process that involves a relatively small amount of administration. It can be completed by the company directors themselves and costs just £10. A Members‘ Voluntary Liquidation (MVL) is a formal process for winding up a solvent business that involves far more administration and must be carried out by a licensed insolvency practitioner. It costs upwards of £2,500 +VAT.
Although strike off and a Members’ Voluntary liquidation are both ways to close a business down, there are many differences between them:
- Strike off – Striking your company off the Companies House Register is only possible if there are no threats of legal action against your business and no pending or ongoing insolvency procedures taking place. The company must be solvent and all parties (including creditors, employees, shareholders and directors) must be informed.
- Members’ Voluntary Liquidation – The appointment of a liquidator to manage the process ensures that all legal requirements are met. A Declaration of Solvency must be signed by the directors of the company to confirm the company can pay all its debts within a maximum of one year.
- Strike off – If a creditor has not been informed about the strike off and subsequently makes a claim or if any irregularities come to light, your conduct as a director could be investigated, potentially leading to personal liability for company debt and even disqualification as a director.
- Members’ Voluntary Liquidation – If you sign the Declaration of Solvency and it later emerges that company debts exist, you could be made personally liable.
- Strike off – The maximum value of share capital and company assets that can be distributed on strike off is £25,000. Any more than that will be taxed as income. That’s likely to make a Members’ Voluntary Liquidation a better option if you’re a higher rate taxpayer.
- Members’ Voluntary Liquidation – Although the upfront costs of an MVL are greater, if the company has significant assets, the savings you’ll make are likely to outweigh the costs.
What’s the most appropriate way to close your limited company?
At AABRS, we offer a free, no-obligation initial consultation for company directors who want to close their businesses. We will help you find the most appropriate route from a legal and tax perspective while keeping your costs down. For expert advice, please get in touch today.