Liquidation, which could either be a creditors’ liquidation, members’ voluntary liquidation or on the orders of a court, is one of the ways in which a company could end its life lawfully. An alternative to liquidation is an arrangement, whether formal or informal, between the company and the creditors where both parties come to an agreement to settle the dues. The company could also go in to administration before being liquidated. But the most cost-effective of all, to legally put an end to the company’s activities, is by striking it off the public register. Strictly speaking company strike off is not liquidation but is akin to clinical death as opposed to clinical plus brain death.
Nearly over 1000 companies are dissolved on a daily basis of which 95% of them end their life through the voluntary strike-off procedure. This article discusses the law and procedure for voluntarily striking a company off the public register maintained at the Companies’ House, which is permitted by Part 31 of the Companies Act 2006.
Why would you apply for voluntary strike off?
The directors have a duty (s.172) to promote the success of the company and must exercise reasonable care, skill and diligence (s.174). The company on its part is required to produce annual accounts on a going concern basis unless the directors determine that there are significant doubts about the entity’s ability to continue as a going concern. So the directors have a lot of responsibilities when it comes to company management. Logically, when the company can’t trade any more the directors have a duty to take action. Therefore, s1003 gives the directors the power to apply to the companies’ house for strike off where the company has not traded for at least three months.
When you can’t apply for strike off?
S.1004 lists circumstances in which an application for strike off shouldn’t be made. The circumstances are that in the three months preceding the strike off application the company shouldn’t have:
- Changed its name
- Traded or otherwise carried on business (paying off any liabilities incurred whilst trading or carrying on the business is allowed though)
- Made a disposal for value of property or rights that, immediately before ceasing to trade or otherwise carry on business, it held for the purpose of disposal for gain in the normal course of trading or otherwise carrying on business
Carrying on any activity leading to making the striking off application, for concluding the affairs of the company or complying with any statutory requirement is not considered an activity in contravention of this provision.
s.1005 then lists other circumstances when the application can’t be made. These are when:
- An application for compromise or arrangement has been made under the Companies Act
- A voluntary arrangement has been proposed under the Insolvency Act
- The company is in administration
- Winding up proceedings are on against the company
- A receiver or a manager has been appointed for the company’s property.
When it is not advisable to strike it off?
Assets: The assets of the company at the time of a striking off will vest automatically in the Crown as bona vacantia (s.1012). So if the company has significant assets it is not advisable to strike it off as they can be recovered only by restoring the company to the register.
Liabilities: If the company has liabilities the creditors can object to the strike off within three months of filing for strike off. Also, the company could be restored to the register upon an application to the court within 6 years after it has been struck off. Upon restoration, the liabilities of the company, its members and officers are resurrected.
The procedure for strike off
An application for strike off should be made by the directors; in fact a by a majority of them. So it makes sense to convene a Board meeting to consider the application, as the majority needs to approve it. As the assets and liabilities of the company assume significance upon dissolution it is advisable that a balance sheet of the company is also available at the meeting.
Because any assets upon strike off vests in the Crown it is advisable to have a look at the capital of the company. If the company has a large capital base it may be wise to reduce it and distribute the proceeds to the members before strike off. Click on the link below for a detailed understanding of how capital could be reduced:
Form DS01
An application for strike off should be submitted in form DS01 (in paper form) to the Companies House with a fee of £10. It should be signed by the sole director or by both the directors where there are two directors. If there are more than two directors then a majority of them should sign the form.
Within seven days of making an application for strike off, a copy of it should be sent to all shareholders, creditors, employees, directors (other than those making the application) and the manager or trustee of any pension fund established for the benefit of employees of the company (s.1006). It is also advisable to serve a copy on the bank even where the bank is not a creditor. A person who fails to provide a copy to the interested parties, with the intention of concealing the making of the application from the person concerned, commits an aggravated offence. Aggravated offence invited fines and imprisonment. It must be noted that a ‘creditor’ for this purpose includes a contingent or prospective creditor (s. 1011). This definition is relevant for companies applying for strike off before the first corporation tax return is due. Even where the corporation tax has not been assessed up until the date of applying for strike off, HMRC could be a contingent or a prospective creditor and a copy of the application for strike off should, therefore, be served on them as well.
The registrar of companies will publish a notice in the Gazette (S.1003(3) inviting objections as to why the company’s name shouldn’t be struck off. Objections should be sent to the registrar in writing providing supporting evidence as to why the company shouldn’t struck off. Reasons could include the directors not informing the interested parties or any fraudulent act on the part of the directors. If no objections are received within three months of publication, a further notice is published confirming that the company’s name has been struck off.
Once a company has been struck off the register, a former director or a former member of the company may apply to the registrar to restore the company to the register within six years after the company has been struck off, using form RT01 (s.1024).
VAT deregistration
Where the company is registered the directors should apply to HMRC for deregistration from VAT within 30 days of filing an application for strike off using form VAT7 (HMRC VAT notice 700/11).
