The decision to close a company is one most directors will make. This could be for a range of reasons, from insolvency to retirement. There are several methods to closing a company, including a Members’ Voluntary Liquidation and a Creditors’ Voluntary Liquidation. Both methods specialise in tackling specific issues, and there are plenty of other strategies to consider too.
In this article, we will focus on one of the most common methods. Namely the removal of a company from the register of the Companies House. We will explain how this process works, when you should consider it, and how long you can expect it to take.
What is a company strike off?
A company strike off, sometimes referred to as a dissolution, is the process of removing a limited company from the Companies House register. Once the process is complete, your company will be considered as non-existent. To begin the process, you must file a DS01 form.
Company strike offs fall into one of two categories; a voluntary strike off and a compulsory strike off.
Voluntary strike offs
A voluntary strike off is, unsurprisingly, when company directors make the decision to close a company through the Companies House. To close your company through this method, you must first meet three conditions and satisfy certain obligations. These conditions are:
- Your company must not have changed its name nor traded at all three months prior to your application.
- Your company must not be threatened with liquidation.
- The company must have no existing creditors with which it has agreements. For example, you must not be in a Company Voluntary Arrangement with your existing creditors.
Assuming you have met these conditions, you can consider making an application, either online or on paper. This request will then be published in the Gazette, allowing for a two-month period where people can object. If the two-month period elapses without objections, you must then ensure you close your company properly, announcing your intentions to both HMRC and your employees. Your business assets must then be liquidated and your accounts emptied. Failure to follow these steps could result in legal consequences, and will likely see at least some of your remaining assets and accounts passed to the Crown.
If you change your mind or are no longer eligible for a company strike off, you can withdraw your application. In this case, you must complete a DS02 form, or withdraw your application on the Companies House online service.
Compulsory strike offs
A compulsory strike off is a completely different animal, one with significant and long-lasting consequences should it happen to you. It is a process that must be instigated by a third party, usually an outstanding creditor or HMRC.
If your company is forced into a compulsory strike off, both you and your company will face serious consequences. Your company will cease to exist, quite like the voluntary strike off, but the similarities end there. Rather than allowing you time to dispose of your assets, they will instead be seized. Going to the Crown or to repay your outstanding creditors. If, after this process, you are still unable to pay off your company debts, it is possible for company directors to become personally liable.
In addition to the financial repercussions, there can be significant personal ones too. Most notably is the result of an investigation into company and director conduct. If you are found to have not acted as you should, you risk being disqualified as a director for up to 15 years. Alongside the previous consequences, this can be catastrophic. It is advisable to avoid being subjected to a compulsory strike off at all costs, and to closely follow the rules when closing your company through other means. If your company is facing unmanageable financial strain, don’t hesitate to act. Contacting a licensed insolvency practitioner for assistance with the liquidation process may be what you need to guide you through such a difficult time.
When is a company strike off suitable?
Company strike offs are appropriate for an array of circumstances. Below are several examples:
- Retirement – One of the most common reasons for a company strike off is retirement. This is usually the case for most Personal Service Companies (PSC), as the person and the company are one and the same. Continuing operations with another person at the helm rarely continues the pattern of past successes.
- Unprofitable operation – A director may choose to strike off their company if operations are no longer profitable. Rather than take the risk of investing further, closing can be seen as the most rational option. However, there is a significant difference between unprofitable and insolvent. If your company is insolvent, a company strike off is not a suitable method. Consider another strategy, such as a Creditors’ Voluntary Liquidation.
- Transition to a sole trader role – Similar to the above scenario, it may make more sense to close a limited company and transition into a sole trader role. A limited company may cost more to operate, making little financial sense to continue operations in this form. Alternatively, a director may wish to scale back work hours in a halfway house to retirement, making the operation of a company less appealing.
There are many other reasons to consider a company strike off. However, it is important not to think of this method as a cheap method of closing a company in financial distress. Using it in such a scenario will likely create more problems than it solves. So, other methods are much more appropriate.
How long does it take to strike off a company?
In the vast majority of cases, it takes at least two months to complete the process of striking off a company. Most of this time is due to the two-month window for objections to the closure, once the news is reported in the Gazette. Taking into account other paperwork and communication with relevant parties, the minimum time is usually closer to three months. Provided no objections are made within the two-month window, and you have acted in accordance with the rules, a second notice will be announced in the Gazette marking the end of your company.
What are the alternatives to a company strike off?
While a company strike off will work for some businesses, those with assets or debts will need to explore other routes.
There are two main routes that a director can take to close a company in the event that a company strike off isn’t suitable, these are:
Members’ Voluntary Liquidation – an MVL is a formal liquidation procedure for solvent companies. The process is often the most tax efficient way for shareholders to access the assets of the company once it is closed. The process is managed throughout by a licensed insolvency practitioner. During this process the assets of a company are recalculated after any company debts are paid off. The remaining funds are then distributed to the shareholders and the company is closed.
Creditors’ Voluntary Liquidation – a CVL is a formal liquidation procedure for insolvent companies (those with more debts than assets). The process is usually undertaken because the directors of the company want to restructure a company or deal with its debts. The process is managed throughout by a licensed insolvency practitioner. During this process the assets of the company are liquidated in order to pay the debts of the company before it is closed.
Clarke Bell can help
If your company is facing financial stress and a company strike off isn’t suitable, Clarke Bell is here to help. We have over 28 years of experience helping companies through the liquidation process. Contact us today to find out what we can do for you.