What directors and business owners need to know
Company strike off also known as dissolution, is the formal action of closing a company. It means that the company is formally closed or dissolved and removed from the companies house register.
There are actually two types of a strike off – voluntary and compulsory.
A voluntary strike off is where the company’s directors choose to dissolve the company, whereas a compulsory strike off is where a creditor or another party petitions to have the company struck off, usually as a result of non-payment of outstanding debts.
Why apply to strike off and dissolve a company
There are several reasons why directors might want to dissolve their business. These include:
- Retirement – if the existing management team has no successor in place due to imminent retirement then there may be no other choice than to close and dissolve the business when this happens.
- Unresolveable conflict – There are disagreements between shareholders and directors in every business but if serious enough and they cause a rupture in the company then a sensible way forward could be to strike the company off and allow the principals to part and go their separate ways.
- Unprofitability – If a company isn’t making sufficient profit or has not achieved expected growth and has limited prospects for future success then dissolution might be the smart move.
- New challenges – Entrepreneurs thrive on challenge and opportunity and sometimes a new and more profitable one might emerge which means ending an existing business project and launching a new one. Dissolving the old company to free up the time to pursue a new one is a common reason for dissolution.
- Negative prospects – Sometimes the high water mark for a company has passed and there is no realistic way of maintaining profitability going ahead. In this case, winding down the company and dissolving it is the smartest and most efficient solution.
Advantages and disadvantages
As with any insolvency procedure, there are pros and cons to it that should be considered before going any further.
- Having your company struck off is a cheaper alternative to some other formal insolvency procedures.
- It’s a relatively straightforward process that can be managed by company directors themselves rather than having to use a licensed insolvency practitioner.
- No investigation into directors conduct which is mandatory with other liquidation procedures
- Relatively quick – the process usually takes in the region of three to nine months for the company to be formally dissolved.
- Any strike off application can be rejected relatively easily for several reasons by any stakeholders or interested parties for a variety of reasons.
- Dissolved companies can be revived up to six years after their dissolution if there is evidence that fraud has been committed
- Company directors of dissolved companies could be made personally liable for outstanding business debts if the company had them when it was improperly dissolved
- The Crown will assume ownership of any assets registered to the business at the time of its dissolution as they will be frozen
Not every strike off is voluntary and there are hazards for directors of businesses that have a compulsory strike off carried out on their company.
These can include businesses that are still trading but don’t file their accounts on time with companies’ houses and fail to respond to various warnings and reminders to do so.
The consequences can be severe including the directors potentially being made personally liable for debt, the company ceasing to exist as a legal entity, loss of assets and potential disqualification for up to 15 years.
How does a company strike off happen?
There are several steps involved in striking off a company but they are relatively straightforward.
- Set meetings with any other directors or shareholders to confirm the process is taking place
- Make sure all employees are paid up to date and in full including any owed holiday pay or redundancy pay
- Formally let all other interested parties including HMRC know the company will be dissolving and request all tax positions are brought to an end
- Pay any final or outstanding tax bills
- File any outstanding companies house documents
- Complete DS01 form available from companies house and make sure a copy is sent to all shareholders and directors along with any managers or pension trustees
- Settle the company’s accounts and assets making sure they are realised and shared amongst shareholders before the company is struck off
- Close all company bank accounts
- Send DS01 form to companies house and pay the £10 filing fee – but not from any company account
While this process can be done by a director, some will use an insolvency practitioner to oversee the process for them to make sure that nothing is missed or that there are any loopholes which could be used to resurrect the company and give exposure to the directors at a later stage.
There are several reasons why a business might want or have to close and for a debt free company – a striking off can be the most efficient and effective way of closing the book on a company for the last time.
Depending on circumstances however, it might not be the most suitable and there might be other ways of achieving the same result that directors want.
Before pursuing a striking off or any other type of insolvency, get in touch and we’ll arrange a free initial consultation with one of our expert advisors.
They will let you know if this is the right path for you based on the circumstances of your company or suggest an effective alternative that might achieve the same or even better outcome. The only way to find out for sure is to make that call first.