Striking off is the right option for some businesses but not all
Companies House have released their final version of their Companies register activities for the previous 12 months and they have some interesting information about the number of businesses operating in the UK right now.
The register maintains the number of businesses, including the number of new company incorporations less the number of dissolutions and companies removed from the register.
The latest period covers March 2022 to March 2023 and shows a 6% increase in the number of dissolutions from 581,824 in 2021/22 to 585,807 in 2022/23.
This is the highest annual total of company dissolutions in over ten years.
The total is made up of 557,096 dissolutions/strike offs and 28,711 companies that were voluntarily wound up or subject to supervision of the court under the Companies Act.
The total number of liquidations recorded in the same period was 33,064 (made up of 22,827 insolvent liquidations and 10,237 members voluntary liquidations (MVLs).
The average age of a dissolved company was 4.88 years.
Why are there so many company dissolutions/strike offs?
In some ways it’s positive to see more company strike offs and dissolutions than liquidations because it’s a straightforward and cost-effective way of closing a business that is no longer required or has no viable way of being profitable and effective.
The most important thing to bear in mind about a dissolution is that it is only available to directors under a certain set of circumstances.
The main determination is the level of debt held by the business.
If the company is debt free or can pay off all creditors prior to ceasing trading and there are no material assets left to be distributed then a dissolution could be the most straightforward and efficient method of closing down a business.
If there are existing financial obligations that can’t be met within 12 months then dissolution is not on the table although a voluntary liquidation can be used instead.
Dissolution Pros and Cons
Like any insolvency process, there are advantages and disadvantages to each. Let’s look at the pros first:
- Striking off a company is the cheapest alternative to other formal insolvency procedures with the filing fee being £10
- Dissolution is a straightforward process that does not require a licensed insolvency practitioner to oversee it – it can be managed by any of the company directors
- The process takes from between three to nine months from start to finish
- Unlike CVLs and compulsory liquidation procedures, there is no mandatory investigation into directors’ conduct regarding their decisions and the circumstances that have led to the closure of the business
But what about the disadvantages?
- The dissolution application can be challenged and rejected by most interested parties including stakeholders. There are several reasons why it can be objected to including outstanding debts or if the business has been wrongfully trading
- These interested parties including the Insolvency Service and other creditors can also apply to have the company revived up to six years after the dissolution date if they credibly believe that the directors have improperly dissolved the business or committed other offences including fraud
- If it’s found that the business had outstanding liabilities when the company was dissolved then directors could be held personally liable for repayment of these debts
- Regarding assets – if the business has any registered to it from the date of dissolution then they will be frozen and awarded to the crown estate under a process known as Bona Vacantia
Chris Horner, insolvency director with BusinessRescueExpert, said: “Company dissolutions are the simplest and most straightforward way of closing a business but it has to meet specific criteria.
“We get several inquiries from directors looking to close their business that are surprised when we tell them that they would have to use a liquidation process instead because they have read or been told misinformation about dissolutions.
“This is why directors should get some impartial and professional advice before deciding to pursue a course of action as it might not be the best one for them.
We offer a free initial consultation for any business owner who wants to explore what options they have to close their business.
Depending on their circumstances there might be different options they can pursue that will be better fit for them.
The sooner they get in touch, the sooner they will be able to make those crucial decisions with the right information.