Striking off a company from the Companies House Register is a process otherwise known as dissolution.
Although this is a process that is usually voluntary, initiated by the company directors and shareholders at a time that is right for them, a company can also be forcibly struck off the Companies House Register by a third party.
In this guide, Clarke Bell outlines everything you need to know about compulsory strike-off, from how it works and why it might happen.
What is compulsory strike off?
The dissolution, or striking-off of a company, is the legal process that marks the end of the company.
As we have mentioned, this is a process that is usually voluntary, meaning it has been initiated by the director. Here, the director fills out a DS01 form which is then returned to Companies House. Upon approval, the company will then be dissolved.
However, a company can be forcibly struck off the Companies House Register if they have (who is “they”? Companies House?) real grounds to believe that the company is no longer trading or is no longer compliant. If this is the case, Companies House can start the process of forcibly striking it off the register of companies.
Once the company is struck off the register, it no longer exists as a business.
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Why does compulsory strike-off occur?
In cases of compulsory strike-off, a company is forced to dissolve by a third party, such as Companies House themselves. This usually occurs for reasons of ‘non-compliance’, in line with the Companies Act 2006.
Non-compliance usually refers to the following reasons:
- The company has failed to submit its annual confirmation statement
- The company has failed to file its accounts on time, within the stated deadline of 9 months after the financial year-end
- The company has not notified Companies House about a change to their official registered address
- There is no director in place
If it is the case that the company has stopped trading and operating, the business director might let it be forcibly struck off. After all, this is an easy way to officially dissolve the business.
However, it is important to remember that dissolution is not a way to close a company with debts. In cases where a business is struggling financially and is insolvent, third parties can petition against the compulsory strike off.
For example, HMRC or other creditors that are owed money can object to the compulsory strike off. They can then petition to put the company into compulsory liquidation to get back what they are owed, which is the most serious type of liquidation a company can be put through.
If this is the case, directors should act quickly to take the correct steps to avoid the negative consequences of compulsory liquidation, such as director disqualification or personal liability. Directors of insolvent companies should instead consider putting the company into Creditors’ Voluntary Liquidation (CVL.) Find out more about Creditors’ Voluntary Liquidation in our handy guide.
How does the compulsory strike off process work?
When it comes to compulsory strike-off, Companies House will initiate the process by sending at least 2 letters to the company. These letters warn the company that it is in breach of non-compliance and therefore if it does not act, it will be removed from the Companies Register.
If you wish to save the company, at this stage you must send a suspension application to Companies House. Depending on the factor that prompted the strike off notice, you will then be required to resolve the issue of non-compliance. If you are successful, then the company can continue to trade and operate.
If Companies House does not receive a reply to these letters, its next step is to publish a strike off notice. This is published in The Gazette and is known as the ‘First Gazette Notice for Company Strike Off.’
This notice is a declaration that the company will be struck off in 2 months. Within this time, the director, shareholders or third party creditors have the opportunity to object to the compulsory strike-off.
If there are no objections, then the company will be dissolved and struck off the company’s register.
How long does the process take?
Upon receiving the first warning letter from Companies House, the compulsory striking off process will usually take around 4 months.
If a director fails to respond to initial letters from Companies House then they will have only 2 months from the time the first strike off notice is issued in The Gazette in which to prevent the company from being struck off.
What are the impacts of compulsory strike off?
If a director fails to reply to warnings from Companies House, the company will be forcibly struck off, even if it continues to trade.
This will have a range of negaitve consequences, including:
- The business no longer exists as a legal entity
- The company will not be able to secure funds or finance for business rescue
- Directors will face investigations. This looks at the directors’ conduct to find out why the situation occurred. This can lead to directors’ disqualification
- Any cash and undistributed assets belonging to the business become ‘ownerless property’ meaning they will be transferred to the Crown automatically
- Relationships with customers and clients will be put at risk
- If the company continues trading, then the directors and shareholders are no longer protected by limited liability. This could lead to these parties being held personally liable for company debts
Take the next steps with Clarke Bell
If your company is facing financial difficulties, you will need to know what the best next steps are under the circumstances. That’s where Clarke Bell can help you.
Our team of expert insolvency advisers will work closely with you to get to know your situation and find the best path forward. To see how we can help you simply get in touch today.