What does it mean to strike off a company?

A company strike off literally means taking a company off of the Companies House register. Striking off a company is often done when directors wish to pursue a cost-effective means of closing down a business. The following article explores in some depth both why you might wish to strike off your company, and how to go about doing so.

What does striking off a company mean?

Striking off a company, also referred to as dissolving a company, is a process for the removal of a company from the register of companies held at Companies House.

You can only apply to strike off a company if the following criteria apply:

The Company has not traded or sold any stock in the last 3 months
The Company’s name has not been changed within the last 3 months
The Company is not threatened with liquidation
The Company has no agreements with creditors, for example a Creditors

Voluntary Arrangement or Time To Pay Arrangement.

You should not strike off a company if it has any debts with have not been repaid. It is important to understand that if you strike off a company you lose control of its assets, bank accounts and any money due to it after it is struck off. These assets all vest in the Crown under the Bona Vacantia fund.

Whilst you can apply to restore a Company to the register, it is not a cheap process and therefore it should be carefully considered if a strike off is the appropriate course of action.

Additionally, if you do not maintain filings at Companies House, Companies House will take steps to remove your Company from the register. Usually, if no objections are received, companies dissolved in this way are dissolved approximately three months after Companies House has issued the relevant notices.

Why would a company be stuck off?

A company would be struck off usually for one of two main reasons. Firstly, it has not maintained filings at Companies House, and as such Companies House has sought for the Company to be struck off.

Secondly, the Company may have ceased it activities and have no assets / liabilities or may have always been dormant and is no longer required, and therefore the striking off / dissolution of the company is the most cost-effective way to close it down.

Why are companies struck off the register?

There are two different kinds of company strike off – voluntary and involuntary:

A voluntary strike off occurs when the directors of a company apply for it themselves, as a result of no longer wanting to run the business in question.
An involuntary strike off may occur when a separate party petitions that the company be struck off – most often the Companies House register itself, as a result of the company not complying with regulations.

This article focuses primarily on voluntary strike offs, with a very brief overview of involuntary towards the end. Voluntary strike offs are only available as an option to solvent companies – if a company has outstanding debts, or is in the process of completing an insolvency procedure, striking off is not an option. Rather, it is for companies with directors who wish to retire, or are no longer interested in running or selling the business.

If the company is successful, and the directors still wish to retire or walk away, another option that may be preferable is to sell the shares of the company so that another party can take it over.

Prerequisites

To apply to be struck off the register, you must complete a DS01 form. In order to do so, several conditions must first be met.

The company must be solvent.
During the 3 months prior to application, the company must not have:
- Traded.
- Initiated an insolvency procedure.
- Altered the company name.
- Have sold company assets.
There must be no legal proceedings against the company.

Prior to submission, HMRC must be alerted of your intention to strike off the company. Should they not be informed, they have the power to reject your application. Best to get things off to a good start and not be rejected on a formality so easily avoidable.

Striking off

Once these prerequisites have been met, the DS01 form can be submitted. Before doing so, however, all company assets and reserves should be distributed to the relevant parties – both creditors and shareholders. Any assets which are not distributed prior to striking off will go to the Crown, a potentially costly mistake. If a company is asset rich, striking off may not be a tax effective means of closing down; up to £25,000 in assets can be distributed and taxed as a capital distribution subject to Capital Gains Tax which will probably be at a lower rate than the income tax rate , however any assets distributed to shareholders above that threshold will be taxed as income.

If the recipient is a high rate taxpayer, this tax could be significant. Therefore if the assets to be distributed to shareholders exceeds £25,000, striking off may not be the most tax efficient option. The Member’s Voluntary Liquidation process for distributing surplus assets to shareholders will ensure that payments are treated as a capital distribution and taxed at Capital Gains Tax rates and potentially benefit from the Entrepreneurs Relief (Business Asset Disposal Relief ) rate of £10% on the first £1 million distributed.

Following the submission of the DS01, you will then have seven days to notify the interested parties, including but not limited to:

Employees.
Shareholders.
Creditors.
Directors not already aware of the strike off.

Once the submission has been made, it’ll take three months for it to be completed. It must be published in the Gazette relative to your location (either London, Edinburgh, or Belfast,) a procedure aimed at enabling any interested parties to complain about the dissolution. Should such a complaint be lodged, proceedings may potentially be delayed – particularly if the complaint is substantiated.

Rejection

There are several reasons why an application may be rejected. Many of them are avoidable, and should be diligently taken care of before an application is made. These include:

Interested parties not being notified in due time.
HMRC believes tax is still due – one of the more serious causes for rejection.
Ongoing legal proceedings involving the company.
Creditors in opposition due to outstanding debts.

Not a get out of jail free card

Striking off should by not be considered a get out of jail free card. It is possible that an application is approved, and a company is struck off with outstanding debts or unpaid taxes. This does not mean that those debts and taxes simply disappear, nor does it mean that responsibility passes on.

Creditors can apply to have a company restored or placed back on the register again, and should they be successful, they can use this as an avenue of seeking repayment. Likewise, HMRC can seek taxes still owed, with additional penalties added to the amount. In certain circumstances HMRC can make these personal liabilities of the directors. It is therefore imperative that all debts are settled prior to striking off; it will not simply make debts go away, and could compound any issues significantly.

Involuntary strike off

Compulsory strike off can also be a danger faced by companies. It can occur when warnings are ignored and accounts are not filed. The consequences of compulsory strike off can be significant; directors can be disqualified from future directorships, financing avenues may be restricted in the future, and all the company’s assets will usually go to the crown.

One option among many

Striking off a company, as illustrated above, is an appropriate solution for a company in fairly specific situations; solvent, not asset rich, with directors who do not wish to sell the business. If these prerequisites are not met, there may be other, more appropriate ways to close down a company.

The simplest way to find out is to speak to an expert – mistakes can have significant ramifications, so it’s best to place these things in capable hands from the outset.

Now that you have read the guide please feel free to give us a call on 0113 242 0808 or e-mail advice@chamberlain-co.co.uk