Updated: 18th February 2020
When a company is no longer needed or its directors wish to retire, company dissolution and strike-off is a common method of business closure. The company ceases to exist, its name is removed from the register at Companies House, and directors can retire or move on to other ventures.
The company does need to be solvent, however, and also follow strict procedures prior to closure. Failing to carry out the process correctly, or trying to close a business that’s insolvent, can lead to objections by other parties.
Anyone associated with the company – creditors, customers, suppliers, shareholders, and employees, for example – can object to the company being struck-off, so under what circumstances might this happen?
There are various reasons why a third party might want to object to a company being struck-off, including:
Objections are made to the Registrar of Companies, either by letter or email, and once received the Registrar postpones the strike-off and investigations commence into the objection.
If Companies House agrees to investigate the situation the dissolution process is halted, but even if the company has already been struck-off, it can be restored to the register as if nothing had happened.
The circumstances surrounding the objection will be investigated – if a creditor has claimed that the company owes them money, for example, the existence of the debt will need to be established.
Directors are informed that the strike-off has been suspended and that investigations are ongoing, but there can be severe consequences if any misconduct, deliberate tax avoidance or evasion, or fraud is uncovered.
Potential ramifications could include:
Unsurprisingly, HMRC will object to a company being struck-off if there are outstanding tax liabilities. The company’s dissolution is advertised in the Gazette for the specific purpose of informing creditors who don’t already know that directors are intending to close the business down.
If the business can’t afford to pay its tax bill, it will be deemed insolvent and may need to be liquidated. Directors then face issues over why they officially declared their company to be solvent.
It’s vital to obtain professional support in these circumstances, and advice on how to proceed. Although limited company directors are protected by the ‘veil of incorporation’ in the main, circumstances such as these could result in personal liability if the situation isn’t handled correctly.
Company strike-off isn’t the only way to close down a limited company, and it can be beneficial in many ways for directors to involve licensed insolvency practitioners at an early stage. They can identify whether or not the business is actually solvent before proceeding, and offer guidance on carrying out the process itself.
Real Business Rescue helps limited company directors to navigate the complex and potentially risky issue of company closure, and can arrange a free same-day consultation. Please contact one of our partner-led team – we work from an extensive network of offices around the country.
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