For companies looking to close, a strike-off, or dissolution, is a more than viable method. It is cheap, effective, and relatively straightforward, making it a good choice for directors wanting to wind up their companies without much hassle. However, it is only an option for solvent companies, and cannot be carried out for companies with unsettled debts.
Despite this, some company directors still attempt to close their insolvent companies using a company strike-off. This often results in suspended strike-off action, leaving directors scrambling for another solution.
In this article, Clarke Bell will discuss what you can do if your company’s strike-off action is suspended, regardless of the reason. With our advice, you will be prepared for any eventuality, and won’t be caught off guard.
What is a company strike-off?
A company strike-off is a voluntary procedure for closing a solvent company. It is sparked by company directors upon submitting a DS01 form with Companies House. Your intention to dissolve your company will be posted in the Gazette, notifying the public of the upcoming dissolution.
Assuming your intention to dissolve your company is not challenged, the process can begin in earnest after two months of having your notice published in the Gazette. At this point, you will be responsible for disposing of any company assets and emptying any accounts. Anything remaining within the company once it is removed from the register will be considered “Bona Vacantia”, or without an owner. The Crown will immediately take ownership of these assets, so it is important to act swiftly. A second notice will be posted declaring the successful dissolution of your company, and it will cease to exist as a legal entity after this point.
However, company strike-off action is only an option for solvent companies that meet specific eligibility criteria. Directors of insolvent companies who attempt to use company strike-off action will likely see their application rejected, and can potentially suffer consequences for even seeking this course of action. Depending on the circumstance, it could be seen as an attempt at escaping debt, which will, in turn, be seen as director misconduct. If you are unsure of whether your company is eligible for dissolution, consider these criteria:
- Your company has not traded in the past three months before your application.
- Your company has not changed its name in the past three months before your application.
- Your company is not insolvent, meaning it can pay off all its debts and liabilities within 12 months. It must also not be currently engaged in any insolvency proceedings.
- Your company is not currently facing any legal action. This includes winding up petitions from your creditors.
If your company meets all of the above criteria, it is eligible for company strike-off action.
Also Read: Voluntary Liquidation vs. Company Strike Off
Why is my company’s strike-off action suspended?
If your striking-off action is suspended, you might be wondering why this is the case. Thankfully, the answer is usually quite simple. In most cases, objections will be made by a company’s outstanding creditors. These creditors could be lenders, contractors attempting to collect on unpaid invoices, or even HMRC. If the company is struck off, these creditors are likely to lose their capital, with their only option for recovery being a lengthy legal process. This process can be both expensive and time-consuming, often making it too costly to warrant initiating. As such, creditors would prefer to lodge their objection beforehand and avoid this scenario, with a window of two months in which to do so. If the Companies House accepts this objection, your company will not be struck off.
A company’s strike-off action could be suspended for several reasons, and sometimes multiple reasons apply. Consider the following reasons as possible causes for your strike-off action being suspended:
- Your company is insolvent, or currently has one or more outstanding creditors.
- Your attempt at strike-off action has been blocked by a third party. This could be outstanding creditors, other directors that were not in agreement, shareholders, or other parties related to your company.
- You have engaged in wrongful trading, either deliberately or accidentally.
- Your company was found to be ineligible for strike-off action according to the criteria mentioned above.
Your attempt at strike-off action could have been suspended for any one, or multiple, of these reasons. If you are unsure which apply, contact Companies House and ask why your application for dissolution was suspended.
What to do if your attempt at strike-off action is suspended
If you have received a letter from HMRC or Companies House declaring that your strike-off action has been suspended, you should adhere to the instructions included in that same letter. In all likelihood, they simply want a document submitted or a debt settled, both of which can be easily fixed. However, if you have applied for a company strike-off as the director of an insolvent company, you will have more to do. Most importantly, you should contact a licensed insolvency practitioner for their help, as it will be difficult to solve this problem alone.
Resubmit your application
This might seem like a vain attempt at continuing the process, but it is a quick and easy solution to try. Sometimes mistakes are made, causing your application to be halted without good reason. In other cases, those that objected previously might simply overlook the next application, allowing it to slip by unnoticed. Whatever the case, resubmitting your application is a risk-free solution that you might as well try.
However, if your outstanding creditors have made a valid objection, this solution isn’t likely to work. Once your attempts at a striking-off action have been noticed, your creditors are likely to pay close attention to you and your company. While it is possible for subsequent applications to pass through the net, it probably isn’t going to happen. Creditors have two months in which to lodge objections, and they’re likely to pounce the moment your application is made. Furthermore, your creditors have the option to petition the courts to reinstate your company, as we mentioned earlier.
If this happens, they will be able to force your company into compulsory liquidation to recover their debts.Therefore it’s best to consider the options below as your next steps:
Repay small debts
If your company has one or more small debts, your application to strike-off might be blocked by those creditors. The easiest option is to repay those debts and resubmit your application. Once you have done so, your company will be debt-free, and so able to be struck off without issue.
However, this is possibly easier said than done. If your company cannot afford to repay those debts, no matter how small, you should consider negotiating with your creditors. Ultimately, their objective is to recover as much of your debt as possible, as easily as possible. If you can offer to repay a portion of that debt, they may allow your strike-off to go unchallenged, rather than spend the time and money necessary to recover the rest through legal processes.
If you consider the above option, you should be very careful. While it can be done easily by companies with only a single creditor, doing so with multiple creditors may spark a legal issue. Making payments to one creditor and not the rest will be viewed as making a preferential payment, which in turn will be viewed as wrongful trading. If you cannot repay all your creditors at once, the next solution is likely the best option for your company.
Close through a Creditors’ Voluntary Liquidation
If your strike-off action has been suspended because your company is insolvent, you may need to look for alternative solutions. A licensed insolvency practitioner can help you do this. Once you have enlisted their expertise, they will aim to find the best solution for your situation.
A popular solution for dealing with an insolvent company is a Creditors’ Voluntary Liquidation (CVL). A CVL is a voluntary insolvency procedure, one that directors can initiate to solve their company’s debt problems. Once all directors have agreed upon it as a course of action, you may appoint an insolvency practitioner of your choice to oversee the process. They will take charge of your company, essentially taking on your role as director. Your insolvency practitioner will communicate with outstanding creditors, assist with the necessary documentation, and begin liquidation. Company assets will be realised and accounts emptied, with the proceeds being distributed amongst your company’s creditors. After, your company will be wound up and cease to exist.
In addition to the effective liquidation of your company, a CVL will provide you with some legal protections. Once started, creditors cannot take legal action against your company for the duration of the procedure. This completely protects you from the threat of a winding-up petition, which will likely lead to compulsory liquidation. Furthermore, by using a CVL, any debt that remains unpaid at the end of the process will be written off, unless a personal guarantee secures it. This means you will be free to pursue other ventures without the added baggage of previous debts.
All in all, a CVL is an ideal solution for insolvent companies; it offers an efficient means of dealing with a company’s debts, while also ensuring your obligations to creditors are upheld.
Clarke Bell can help
If your company is struggling with debt issues, and you need an alternative solution to a company strike-off, let Clarke Bell help you.
We have more than 28 years of experience in helping company directors to find the best solution to their problems, and we can do the same for you.
Contact us today for a free, no-obligation consultation, and find out exactly what we can do for you.