Company strike off refers to the process of closing a company through an informal channel; it is also sometimes referred to as dissolving a business. When a limited company is struck off – or removed – from the register of companies held at Companies House. This register holds the names of every active and dormant company within the UK. When a company’s name is removed from the Companies House register, the company ceases to exist as a legal entity and any assets will be classed as ‘bona vacantia’ and will be transferred to the Crown.
There are two ways a company can be struck off; either voluntarily by the company’s director and/or shareholders, or else they could face compulsory strike off.
Although it may seem strange that a company director or shareholder would want to voluntarily have their company struck off, there are in fact a number of reasons why strike off may be a suitable step for a company to take if it is no longer useful to the owners.
If you have decided your company is no longer required – perhaps you have ceased trading, or never begun trading in the first place – informally striking off the company is a quick and cost-effective way of bringing operations to an end. A company can apply to be struck off the Companies House register by submitting a DS01 form and paying the relevant fee.
It is important to note that company strike off is only suitable for those companies which are solvent – i.e., they do not have any outstanding debt which is owed to creditors – and are up to date with their administrative obligations such as ensuring accounts have been filed.
When a company voluntary applies for strike off, they have an obligation to notify any interested parties by providing them with a copy of the DS01 form; this includes any creditors of the company. If your company has outstanding creditors and you attempt to dissolve the company before settling these liabilities, you should expect for one or more of these creditors to submit an objection to your strike off request.
A company may have closure through a strike off process forced upon them should they refuse to either pay creditors, or fail to file accounts or submit their confirmation statement on time. In this instance the company will be served a first Gazette notice for compulsory strike off which notifies interested parties of the active petition to close the company.
Once the first Gazette notice has been issued, a period of three months will then be given for any objections to be raised. If no objections are received, the company will be struck off the register and will cease to exist as a legal entity.
Once a company has been struck off, it is much more difficult for a creditor to recover any money the company owes. Therefore, if a strike off is attempted while outstanding debts remain, creditors can object in order to ensure the company continues to exist as a legal entity, improving the chances of recovering some of the money owed.
For a solvent company with cash or other assets to distribute, opting to close the company via a formal procedure known as a Members’ Voluntary Liquidation – or MVL – may be a better option than striking the company off. This is because when a company is closed using an MVL, distributed assets are treated as capital gains rather than an income or dividend.
This means that rather than attracting tax at your usual rate, proceeds are instead subject to Capital Gains Tax (CGT) at 20% for higher rate taxpayers. This rate could be reduced even further if the gain qualifies for Business Asset Disposal Relief – previously known as Entrepreneurs’ Relief, reducing your CGT rate down to 10%. Business Asset Disposal Relief is capped at a lifetime limit of £1m worth of gains.
If your company has in excess of £20,000 to distribute, it is likely that an MVL will be a more tax-efficient and cost-effective way to extract the proceeds when compared to dissolving the company through a strike off process. An MVL can only be entered into under the guidance of a licensed insolvency practitioner. If you are considering closing your solvent company, taking advice from an insolvency practitioner at an early stage can ensure this is done in a way which will maximise your returns.
Company strike off is only suitable for those companies which have no outstanding debts or other liabilities. If you are looking to close your business because of financial difficulties, strike off is unlikely to be an option for you. As creditors know it is extremely difficult to recover money from a company which has been dissolved via strike off, they are likely to continue to object to any attempt you make to close your company in this way.
If your company is in financial distress and you are looking to cease trading and close the business down, this can be achieved through a formal insolvency process known as a Creditor’s Voluntary Liquidation (CVL) which allows companies with debt to be closed down. A company can only enter a CVL under the guidance of a licensed insolvency practitioner who will be responsible for managing the whole process once appointed.
All company assets will be located, with the proceeds being distributed amongst creditors on a proportional basis. Any debt remaining after this point will be wiped out unless any of the company directors or shareholders have provided a personal guarantee as security for the borrowing. The company’s name will then be removed from the Companies House register and it will no longer legally exist.
By opting to formally liquidate your company rather than going down the strike off route, you may also have a valid claim for director redundancy and other statutory entitlements. Your appointed insolvency practitioner will be able to refer you to a specialist redundancy claims management company if it is likely you are eligible for a redundancy payment.
There is the potential to mark an unused company as ‘dormant’ as an alternative to striking it off. This allows the company to remain as a legal entity and ensures another company cannot be registered under the same name.
However, there are still administrative requirements which a dormant company needs to adhere to. If it has been decided that the company is no longer needed, and the chances that it will be required in the future are slim, striking it off is likely to be an appealing prospect if no debts are owed.
If you are considering closing your company using the strike off method, you should take advice from a licensed insolvency practitioner beforehand to ensure this is appropriate for your company and its financial situation. A licensed insolvency practitioner will be able to advice whether dissolving your company is suitable, and if not, they will be able to talk you through the alternatives. For immediate advice, or to arrange a free no-obligation consultation with a licensed insolvency practitioner, contact the experts at Real Business Rescue today on 0800 644 6080.