Who is strike off suitable for?
Strike off is only suitable for those companies with minimal assets to distribute and no outstanding creditors left to pay. This may be the situation for a company which is currently dormant, one that has never traded, or one where all assets and liabilities have already been dealt with. In these circumstances, dissolving could be a cost-effective way of bringing the company to a close.
In order to qualify for strike off, the company:
- Must not have traded or sold any stock in the past three months
- Must not have changed its name in the past three months
- Must not be threatened with liquidation or have any agreements in place with creditors
Objection to company strike off
If the company has debts which is it unable to repay, dissolving the business is unlikely to be suitable. If an insolvent company does attempt to go down the strike off route, it is highly likely that the application will be objected to by a creditor who is owed money. This is because once a company has been struck off, it ceases to legally exist, therefore any outstanding creditor will be unable to chase for the monies owed. It is therefore in the creditor’s interest to ensure the company remains active until all debts have been collected.
When a company applies for strike off, notice of this will be advertised in the Gazette and a copy of the DS01 form must be sent to any interested party such as shareholders or creditors. They will then have three months in which to object to the strike off if they have good reason to do so.
Don’t Fall Foul of Unqualified AdviceStrike off v Liquidation
While strike off and liquidation both result in the company in question being removed from the Companies House register, the process is different. Liquidation can only be entered into under the guidance of a licensed insolvency practitioner, while applying for dissolution can be done by the company directors themselves with no outside involvement. While the lack of professional involvement does make strike off a quicker and cheaper way of closing a business, it also places the onus on the directors to ensure the company is closed correctly and leaves no loose ends or affairs outstanding.
Liquidation requires the identification and liquidation of all company assets, as well as a distribution of all available funds to either creditors or shareholders to be done in accordance with the regulations set out in the Insolvency Act 1986. This is not something that needs to be done as part of the strike off process, as it is assumed that all outstanding affairs of the company have been dealt with prior to the company applying for its dissolution.
When a company is dissolved, there is no investigation into the directors conduct like there is when an insolvent company enters liquidation. This means directors do not run the risk of being made personally liable for any debts of the company. However, directors do need to consider the possibility of a creditor applying to have the company restored to the Companies House register at a later date; if this is done, they are then likely to petition for the winding up of the company which would trigger such an investigation.
Is strike off right for my company?
If you have a limited company which never got off the ground, or perhaps never traded at all, strike off may well be the best way of bringing the company to a formal end. You will no longer have an obligation to file returns and accounts for this non-performing or dormant company, and you will be free to incorporate another limited company immediately if you choose. Furthermore, the company can be dissolved within 3 months at very little cost to you and your fellow directors.
For a company with relatively straightforward affairs, strike off can be considered as a viable and legitimate way of closing a company. Before going down this route however, you should take a step back and consider the full financial position your company finds itself in. Remember, for those outstanding debts, or one with significant assets to distribute to shareholders, liquidation may be a more appropriate way of closing the company. A licensed insolvency practitioner will be able to independently assess your business, its current financial and operational position, and advise you as to the most appropriate next step, whether that be strike off or liquidation.
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