If you are a director of a limited company, it is likely that you will have heard of an ‘active proposal to strike off’ a company. But what does this mean and what does the process of striking-off a company involve?
In this guide, Clarke Bell answers those all-important questions to help every director looking to close their limited company know the best way forward.
What does striking off mean?
An active proposal to strike off refers to the process of a limited company being removed from the register of companies. This is the official register of all companies in the UK held by Companies House.
A company can be struck off for a wide variety of reasons, including:
The director is retiring: it might be that the director of the company is looking to retire and therefore wants to dissolve the business.
The company is dormant: or, it might be the case that the company has always been dormant and therefore the director has no use for it.
There is no viable future for the company: in some cases, the director will consider that there is not a viable future for the company and therefore believes that closing it is the best option.
The director wants to starting fresh with a new business idea: it might simply be the case that the director wants to close the company and start on a new venture.
However, this can also be forced upon the company if:
The company hasn’t filed its accounts: if the director has failed to file company accounts, then it can be forcibly struck off.
There is no director in place: likewise, if there is no director in place at the company then it might be struck off.
Whatever the reason for striking off a company, the end result is that the company is no longer a legal entity and can no longer trade or operate.
What is an active proposal to strike off?
The above covers what striking off a company means, but what is an active proposal to strike off?
An active proposal to strike off can either be a voluntary or involuntary process for a company.
When the process is voluntary, the active proposal to strike off refers to the process by which the company directors petition the shareholders to close the limited company.
This formal request means that shareholders of the company are able to vote on whether the business should be struck off or not. If the majority of the shareholders vote in favour then the striking-off will be set into motion.
When the active proposal for striking off has been passed, a time of 4 weeks is granted to ensure that all company shareholders are notified and informed that this is the case.
Once this 4 weeks has passed, and subject to there being no objections made, the striking-off is able to proceed.
Now, the company director must follow the correct steps to strike off the company. Which involves submitting form DS01 to Companies House within 2 months.
The director must also inform creditors and interested parties of the decision to dissolve.
For the company to be successfully dissolved and struck off, it must not have traded or sold stock or changed names in the last 3 months, and there must be no payment agreements in place like a Company Voluntary Arrangement (CVA). Finally, it must not be faced with insolvency proceedings or liquidation.
In cases where the active proposal to strike off has been forced onto the company, the dissolution will go ahead as long as there are no objections made. For example, from creditors to which the company owes money.
What if my company has assets?
Before a company can be struck off the company’s register, any assets and liabilities have to first be dealt with.
In this instance, the company will usually be liquidated before it is struck off.
If a company is solvent, it can be liquidated through Members’ Voluntary Liquidation (MVL.) This is an option available exclusively to solvent companies, usually with assets worth over £25,000.
This process ensures that the company’s assets are correctly dealt with before it is closed. What’s more, this is a tax-efficient way of closing a company. To find out more about the MVL process and why you would choose this option, read our handy guide.
However, when a company is insolvent, a different set of options will be open to it.
The first is Creditors’ Voluntary Liquidation (CVL.) A CVL allows a director to close an insolvent company that no longer has a viable future whilst dealing with its debts and assets in the correct way and fulfilling duties to creditors.
This is a voluntary process that is initiated by the company director that must legally be carried out by a licensed Insolvency Practitioner. The end result will be that the company is struck off once its debts have been correctly dealt with.
Finally, a company can also be placed into compulsory liquidation. Unlike a CVL and an MVL however, this is not voluntary.
Instead, the company is forced to liquidate before it is then struck off by creditors to which the company owes money. These creditors must be owed more than £750 and must have had a number of repayment demands gone unfulfilled over the previous 21 days.
Such creditors will issue a winding-up petition to the courts. Who will then put a winding-up order in motion if approved.
Clarke Bell is here to help
Whatever your situation, if you are looking to strike off your company Clarke Bell is here to help.
It might be the case that dissolution is the right route for your company. Or perhaps liquidation, whether an MVL or a CVL would be better. Clarke Bell has a team of experts that are equipped to deal with all situations and get the best outcome possible. To see how we can help why not get in touch today?