Would there be any consequences to striking off a company?
Spring is a time for new beginnings and looking to nurture the green shoots of recovery whether they’re in your garden or your business.
But what if you want to change direction and your current business is holding you back?
We know that Covid-19 has fundamentally changed several relationships between customers and companies but none of us know the full extent.
Some of them – like home working and online shopping – we can see for ourselves but other changes will take longer to play out and become apparent.
Some business owners already know which way the wind is blowing however and want to make a new start while they can.
They want to close down their current company and move onto their next project but like a lot of entrepreneurs they aren’t sure how or even if they can.
What do you need to do to close down a business in 2021? Are there any legal impediments and if so, what are they?
Ultimately, are there any consequences to striking off a company?
What is a company strike off?
Closing down a business for good has some formal, legal steps that have to be followed.
There are some conditions that have to be met. Firstly, the business has to be solvent and not own any assets. Also companies that are going through a formal insolvency process such as administration or liquidation are ineligible to be struck off.
If they meet the requirements then the owner can download and submit a DS01 form which they can do online or they can print it out, complete it and post it to Companies House with the correct payment for £10.
Once Companies House receive the form they will complete all the necessary checks to make sure that the business has no debts, or if it does then they can be settled relatively easily.
It will usually take about three months for a company to be struck off if there’s no problems with the application and everything is correct.
A notice has to be published in the London Gazette (or Edinburgh or Belfast) to allow any interested parties to object to the dissolution within seven days of the publication.
These include shareholders, creditors, employees, trustees of the employee pension fund or any directors who didn’t sign the DS01 form.
If any of them object, then the strike off procedure is suspended while an investigation takes place to establish the facts and accuracy of the objection.
A strike off motion can also be rejected if HMRC believe the business owes unpaid tax; if interested parties can prove they weren’t informed of the decision and if there are any active legal proceedings ongoing against the company.
Once everything has been found to be in order then the business will be voluntarily struck off and removed from the Companies House register.
Do your homework
A consequence of not doing your research on a striking off means it can easily be rejected meaning you’ve wasted all the time and effort you’ve put in so far.
The most critical time period to think about when completing the DS01 form is what’s happened in the last three months.
During this time, the business can’t have:-
- Changed its name
- Sold any assets
- Started any other insolvency procedure
It’s important to understand that once the DS01 form has been filed successfully – that’s it for the business as a going concern. It can’t trade, sell assets or do any other kind of business activity.
If it’s discovered that the business has been trading – even inadvertently – then not only is the procedure jeopardised but severe penalties can be incurred up to and including fines and director bans.
A quick note on any remaining assets if they haven’t been sold or distributed to shareholders by the time the company is dissolved.
They aren’t transferred back to the existing owners – they are said to be “Bona Vacantia” and are gifted to the Crown estate instead.
The only way to recoup any overlooked assets after a company has been dissolved would be to resurrect the business at Companies House specifically for that purpose – which would be a lengthy and expensive process.
Compulsory strike offs – the ultimate sanction
There’s also another way for a company to be struck off – and it’s when they’re ordered to close.
Companies House can send compulsory strike off notices to business if it doesn’t file accounts with them on time.
They are given two late payment notices as warnings, sent to the official company address. If these are ignored then a strike off notice is issued.
It will be published in The Gazette as a matter of public record and the procedure goes ahead ultimately closing the company down.
If this happens then the company will cease to exist, even if it was trading profitably at the time. All company assets would be transferred to the Crown under Bona Vacantia so directors wouldn’t receive any payout.
Directors may also be liable for subsequent action including disqualification so compulsory strike offs should be avoided.
If a director follows the steps and makes sure the business is eligible for dissolution then striking off should be relatively straightforward.
On the other hand if they are deliberately trying to dump debts by trying to close the company this way, or avoid having to deal with creditors then not only will the action fail but they leave themselves liable to potential fines and disqualification.
If you think your business has reached the end of the line or you would like to close it but you have outstanding debts then you should still have a conversation with us.
Liquidation might be the right solution – get expert liquidation advice from us, and then decide what works best for you.
Depending on your individual circumstances we can advise you on other processes that might be more suitable for your company and could leave you in a better financial position too.