A compulsory strike-off is often a stressful experience for business owners. There is a lot to be done, and precious little time in which to do it. Taking too long can land business owners in hot water. Leading to the forced closing of a company and potential penalties for directors. To ensure the process goes as smoothly as possible, it’s vital to know the compulsory strike-off process in detail.
One of the most important parts of the compulsory strike-off process is publishing notices in the Gazette. This makes public the intention to close a company, allowing parties to lodge objections to the process. As such, understanding how Gazette notices work is crucial for getting a desirable outcome. In this article, Clarke Bell will be discussing exactly how the first Gazette notice works for a compulsory strike-off. The wider process, and how you can react.
What is a compulsory strike-off?
A compulsory strike-off, also known as compulsory dissolution, is a process of closing a company initiated by the Companies House. It is typically initiated to close companies that have failed to submit their annual accounts. However, it is also used to close companies that breach Companies Act 2006 regulations.
Once the Companies House has decided to pursue a compulsory strike-off against a company, it will first attempt to contact company directors. Usually, two letters will be sent. Stating that the company in question is in breach of regulations or requesting company accounts be sent. If there is no response to these letters, the Companies House will assume that the company is no longer operational, and will begin the compulsory strike-off process. At this stage, the first Gazette notice will be posted.
What is a first Gazette notice for compulsory strike-off?
Publishing a notice in the Gazette announces to the public that a company will be struck off from the Companies House register. The notice opens a three-month window where directors or third parties can object to the closing. If no objection is made within this time, the company will be closed.
Companies can also be struck off the Companies House’s register voluntarily. For a variety of reasons, directors of solvent companies can apply for a strike-off using a DS01 form. However, if the directors of an insolvent company attempt a strike-off, they can expect the process to be halted by their company’s creditors. In this case, the company will likely be forced into a compulsory liquidation, with extracted funds going to repay creditors. If, in the unlikely scenario that an insolvent company is able to conduct a strike-off, creditors can petition the courts to reinstate it. Once reinstated, the company will be liquidated to satisfy the needs of creditors, and directors may be investigated for misconduct. Regardless of the scenario, a notice will be posted in the Gazette, making the situation public knowledge.
What is the purpose of a first Gazette notice for compulsory strike off?
While a first Gazette notice is often the prelude to a compulsory strike off, this is not the main purpose of the notice. Instead, it has two different goals. The first is to inform potentially related parties of the impending striking off action. The second is to provide a window to act. If neither of these goals are achieved, then strike off action is pursued. In a sense, the striking off action can be seen as a failure of the Gazette notice to fulfill its purpose.
The first goal is pursued by making the notice public. In doing so, it is hoped that any related parties will be informed of the upcoming compulsory strike off, and can begin to take action. This cuts both ways; while shareholders can see the company they have a stake in is about to close, so too can creditors. The latter can then move to block the strike off action and take measures to recoup their investment.
The second goal is achieved simply through the three-month window that opens as a result of the Gazette notice’s filing. Both creditors and directors can use this window to submit appeals or objections to the filing, which can result in the notice being rescinded in specific cases. However, if no related parties act within this time frame, the company will be closed and struck off from the register at Companies House. If you have received a first Gazette notice, acting within this time frame is essential to avoid further complications.
Second Gazette notice for compulsory strike off
If no objections are made during the two-month window opened by the first Gazette notice, then the company will be issued a second Gazette notice. Essentially, this formalises the compulsory strike off, and will result in the company being closed down. Upon receiving this Gazette notice, the company must cease all trading immediately, and will have its assets liquidated and accounts emptied. Once all assets have been liquidated, the proceeds will be distributed amongst its outstanding creditors. Once all distributions are made, the company will be wound up and struck off from the Companies House register, marking its end as a commercial entity. This second Gazette notice will also be published, letting the public know what happened to the company in question. The outcome remains the same if objections are made to the Gazette notice, but are not successful in having the notice rescinded.
What can be done if your company receives a first Gazette notice for a compulsory strike-off?
If your company has received a notice of the Companies House’s intention to pursue a compulsory strike-off, you will have a decision to make. Depending on your preferred outcome, you will have certain options available, and so you should give it careful thought.
Appeal the Gazette notice
If you disagree with the first Gazette notice for any reason, and would prefer to avoid a compulsory strike off, your first option is to appeal the decision. If you choose to go down this route, you have three main grounds for appeal. These grounds are as follows:
- The first Gazette notice is unfair – In some more uncommon cases, a first Gazette notice may be valid, but not exactly a fair course of action for creditors to take. If you believe this applies to your company, you may be able to lodge an appeal on these grounds. That said, doing so isn’t easy, as it can be difficult to make a convincing appeal using this justification. You will need to argue that the first Gazette notice is either unfair or a disproportionate action, given the circumstances. In practice, this means you will likely need to prove that it is an unwarranted escalation, or simply inappropriate. If you decide to appeal on this basis, it is strongly advised that you seek both financial and legal professionals to help you craft a coherent argument.
- Erroneous first Gazette notice – Occasionally, first Gazette notices will be made in error. This could mean several things. For some companies, an error will mean receiving a first Gazette notice not meant for them in the first place. For others, it will mean receiving a Gazette notice that has not been properly completed, or has included false information. In any case, any mistake in the submission of a Gazette notice is valid grounds for an appeal, and is likely to end well for your company. That said, an amended Gazette notice can still be served later on.
- Your company is still trading as usual – One of the leading causes of companies receiving a first Gazette notice for compulsory strike off is inactivity. Companies that have ceased trading and no longer respond to requests made by Companies House for important documents are likely to receive a Gazette notice before long. However, there are instances where an active company that has mistakenly neglected to file its accounts receives a Gazette notice. If this is the situation for your company, you may be able to appeal the notice if you can provide evidence of activity. This can stop the striking off action if accepted.
If your company is facing any of the above scenarios, you may be able to lodge an appeal with Companies House. You can contact Companies House on their web page, via written correspondence, or via telephone. It is advised to have a good idea of your situation and a decent argument before you do, however. While you will have time to draft a proper appeal after contacting Companies House, having prior knowledge is always helpful.
You might want your company to continue operating as usual. In this case, you will need to send the Companies House a suspension application. This document is a formal request to halt the compulsory strike-off process. If successful, this will allow your company to remain open. In addition to making this application, you will need to remedy whatever problem led the Companies House to pursue a compulsory strike-off. In most cases, this is a quick fix of sending up-to-date company accounts or confirmation statements, though your scenario may require other action. Once the Companies House has received this, you need only await confirmation that the compulsory strike-off has been dropped.
Allow your company to be closed
If your company no longer serves your interests, you could instead allow it to be closed. In this case, all you need to do is let the compulsory strike-off process complete, and your company will be closed. As we have mentioned, this is not an option for insolvent companies. If pursued, it is more likely to land directors of insolvent companies in trouble than anything else. If your company is insolvent, you should instead consider other options. A Creditors’ Voluntary Liquidation (CVL) is an ideal method of closing an insolvent company. Whichever course of action you choose, you should act quickly. Otherwise, you risk a third party taking the initiative.
If your company is insolvent, and your creditors don’t have faith you can repay them, they may petition the Companies House to enforce a compulsory strike-off. As we have mentioned, this will result in your company closing, liquidation of assets to repay creditors, and possibly an investigation into company directors. To avoid this, it is vital that you must take action before the situation gets out of hand. A CVL or a Company Voluntary Arrangement (CVA) could be just what you need.
Striking-off a company with assets
If a company is struck-off with assets or accounts still in its name, they will become “bona vacantia.” This means that your assets and accounts will be transferred to the Crown. With extracted funds going into the public purse.
To avoid losing ownership of your assets, you should ensure they are all removed from your company before it is struck off. There are two ways to do this. Firstly, you could realise the assets and extract the funds out of the company. If you would prefer to keep the assets, you could instead move the assets out of the company being struck off and into a new venture.
Regardless of which extraction method you choose, you would be best off appointing a licensed insolvency practitioner to handle the process. They will ensure everything is done in accordance with the law, and can offer professional advice on how to handle the situation best. For example, if your company has a significant well of retained profits, you may find that a Members’ Voluntary Liquidation (MVL) is the better option. This process is the most tax-efficient way to close a company, even allowing you to apply for business asset disposal relief, previously known as entrepreneurs’ relief. This ensures that you retain as much of your company’s value as possible.
Clarke Bell can help
If you’re considering closing your company, whatever the reason, then Clarke Bell can help. Our experts have been handling cases just like yours for over 28 years. We can ensure that you find the best outcome for you and your company. To find out how we can help, contact our team today.