For directors of a solvent limited company that has reached the end of its purpose, a voluntary strike off can be an easier and more cost-effective mechanism to formally close the company than the alternative of formal liquidation.
What is a voluntary strike off?
Voluntary strike off is the process of removing a company from Companies House register, resulting in the company being dissolved. The mechanism is designed for entities that are no longer trading, have settled their affairs and liabilities.
Eligibility for voluntary strike off
Before applying for voluntary strike off, there are certain conditions that must be met under sections 1004 and 1005 of the Companies Act 2006 (CA 2006). The company must not have within the last three months:
- Traded or otherwise carried on as a business;
- Changed it's name;
- Disposed of any assets other than those necessary to close the company;
- Engaged in any other activity that is not necessary or expedient to concluding the company's affairs, complying with statutory requirements or specified by the Secretary of State;
- Been subject to any liquidation or insolvency proceedings; or
- Reached an agreement with creditors regarding unpaid liabilities.
Voluntary strike off is not the appropriate mechanism where the company has outstanding liabilities that cannot be paid. In such circumstances, alternative insolvency procedures should be considered.
Step 1 - settling the company's affairs:
Before applying for voluntary strike off, directors must ensure that the company has:
- Ceased trading;
- Paid all its creators and suppliers;
- Collected any outstanding debts owed to the company;
- Submitted any tax returns;
- Closed any PAYE and VAT registrations;
- Identified and distributed the company's assets/property to shareholders (or has no remaining assets); and
- Closed all of its bank accounts.
Unauthorised return of share capital
The share capital of a limited company belongs to the company, and not the shareholders. This provides creditors with a degree of protection to satisfy company debts if necessary. In practice, this means that subscribed share capital can only be paid back to shareholders under controlled circumstances. For solvent companies this can be following a reduction in share capital under section 641 of CA 2006 including the passing of special resolution accompanied by a directors’ solvency statement, or by court process.
Dealing with the company's assets
All tangible and intangible assets owned by the company should be transferred before striking off. After a company has been dissolved, any assets still belonging to the company becomes bona vacantia (ownerless property), which will then pass to the crown under section 1012 CA 2006. This includes monies held in bank accounts belonging to the company, any property and rights vested in, or held in trust for, the company immediately prior to dissolution as well as any payments made to the company after dissolution such as payments from debtors or refunds from HMRC.
Further details of the implications and remedies of ownerless company assets can be found in our previous blog here. Assets distributed to shareholders before the Company is struck off may incur Capital Gains Tax.
Step 2 - preparation and submission of form DS01
Before submitting any application for strike off, the directors of the company should convene a board meeting or pass a written resolution resolving to make the form DS01 application for strike off to the Registrar of Companies. The Form DS01, available on the Government website (Companies House forms for limited companies - GOV.UK), made on behalf of the company must be signed and dated by:
- A sole director, if there is only one director; or
- Both directors, if there are only two directors; or
- A majority of directors, if there are more than two directors.
Once the application has been accepted by Companies House, a notice is published in the Gazette stating that an application has been made for strike off. The notice period runs for two months, during which interested parties can object to the proposed strike-off.
Step 3 - Notifying interested parties
Company directors are legally obligated under section 1006 CA 2006 to inform all relevant parties of the application for voluntary strike off within seven days of the application being made. Relevant parties may include:
- Shareholders;
- Creditors;
- Employees;
- HMRC;
- Local Authorities, if applicable; and
- Directors who did not sign the application
Failure to provide appropriate notice to interested parties is an offence which may result in penalties or prosecution. Once notified, any interested party can make an objection to the strike off, within two months of the notice, if they have a justifiable reason to believe that the company should not be dissolved, such as, any pending legal disputes against the company, outstanding tax liabilities, undisclosed assets, or unpaid debts. If an objection is made, the application will usually be suspended. If no objections are received within the two-month notice period, Companies House will publish a second notice in the Gazette confirming that the Company has been struck off the register.
Any interested person wishing to make a claim for outstanding liabilities or legal disputes after dissolution can make an application to the Court to have the Company restored to the register irrespective of no objection being submitted within the notice period.
If the company has employees, then you must follow the rules for making employees redundant. Depending on how many staff are employed, the Company may need to enter collective consultation. More details on collective consultation can be found in our previous blog here.
Restoration to the register
After the Company has been struck off and dissolved, the Company no longer exists as a separate legal personality. However, a Company can be restored after dissolution by either administrative restoration, or court restoration under certain circumstances. For more information on restoring a dissolved company to the register can be found in our previous blog here.
If you wish to discuss any of the topics raised in this blog, please reach out to a member of our corporate team
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