Compulsory strike off is one of the ways in which a limited company is formally closed and removed (struck off) the Companies Register. This type of company dissolution process is used by Companies House to forcibly strike off a company on the grounds that it is no longer trading.
It is possible to have a company struck off the register either voluntarily or compulsorily. Whilst this article focuses on compulsory strike off, we will also consider and discuss voluntary strike off for comparative purposes.
Company strike off should not be confused with company liquidation (also known as ‘winding up’ a company). Liquidation refers to the process of selling off company assets to pay off creditors, e.g., creditors’ voluntary liquidation, compulsory liquidation, or members’ voluntary liquidation.
Dissolution will generally occur after liquidation, but it can also take place without any accompanying liquidation. For more information on company liquidation, see the government’s advice on liquidate a limited company.
What is the difference between voluntary strike off and compulsory strike off?
Voluntary dissolution generally involves an active decision by the management of a company to close it down and remove it from the register, possibly as a result of going into liquidation.
Compulsory dissolution, meanwhile, is an eventual consequence of a failure to file Confirmation Statements (previously known as annual returns) or submit annual accounts.
In the case of compulsory dissolution, Companies House makes the assumption that the company is no longer needed and takes the decision to dissolve it. We will consider some of the differences between voluntary and compulsory strike off below.
Voluntary strike off
A company that is no longer trading can apply to Companies House to be struck off and dissolved, under section 1003 of the Companies Act 2006. Reasons for doing so may include:
- Directors want to retire and there is no one else to take over
- The company is a subsidiary that is no longer required
- The business concept failed
In order to be struck off voluntarily from the register, there are certain requirements for the company:
- It cannot have traded or sold off any stock in the last 3 months
- It cannot have changed names in the last 3 months
- It cannot be threatened with liquidation (at the present time)
- It cannot have any agreements with creditors, e.g., a Company Voluntary Arrangement, etc.
It is vital that directors making an application for voluntary strike off provide a copy of the application within “seven days from the day on which the application is made, to every person who at any time on that day is …”
- A member (shareholder/guarantor)
- A creditor, e.g., banks, suppliers, former employees if the company owes them money, landlords or tenants, guarantors, personal injury claimants, HMRC, etc.
- An employee
- A manager or trustee of any employee pension fund
- A director (who hasn’t signed the application form)
Under section 1006 of the Companies Act 2006, failure to provide copies of this application to all the relevant parties can lead to a conviction with a maximum of seven years imprisonment and/or a fine.
The Company Dissolution Service from Quality Company Formations helps to avoid the risk of fines, prosecutions, and reputational damage through a voluntary strike off, and includes your required board resolution and the completion and filing of the DS01 form with Companies House.
New customers can purchase the service from our website. Existing customers can purchase the service through the shop on the client portal, OR by emailing us at [email protected], or calling us on +44 (0)203 984 5389.
Compulsory strike off
Unlike voluntary dissolution which is instigated by the company, compulsory dissolution is imposed upon the company by the registrar of companies, Companies House. This is generally considered to be the ultimate consequence of a persistent failure to file Confirmation Statements and annual accounts. Companies House will eventually consider the company to be no longer trading and take steps to strike it off the register of companies.
Compulsory strike off is dealt with under section 1000 of the Companies Act 2006 (entitled “Power to strike off company not carrying on business or in operation”). There is a strict process that must be followed in the case of compulsory dissolution, which provides a chance for the company to object to proceedings and prevent it from being struck off the register (see below for process).
What’s the process of a compulsory strike off?
The process of compulsory strike off is set out by section 1000 of the Companies Act 2006, as follows:
(1) “If the registrar has reasonable cause to believe that a company is not carrying on business or in operation, the registrar may send to the company a communication inquiring whether the company is carrying on business or in operation.” This is the consequence of directors failing to submit confirmation statements or annual accounts on time and ignoring initial warnings from Companies House.
(2) “If the registrar does not within 14 days of sending the communication receive any answer to it, the registrar must within 14 days after the expiration of that period send to the company a second communication referring to the first communication, and stating (a) that no answer to it has been received, and (b) that if an answer is not received to the second communication within 14 days from its date, a notice will be published in the Gazette with a view to striking the company’s name off the register.” This provides an opportunity for the directors to react and prevent Companies House from initiating compulsory strike off proceedings.
(3) “If the registrar (a) receives an answer to the effect that the company is not carrying on business or in operation, or (b) does not within 14 days after sending the second communication receive any answer, the registrar may publish in the Gazette, and send to the company a notice that at the expiration of 2 months from the date of the notice the name of the company mentioned in it will, unless cause is shown to the contrary, be struck off the register and the company will be dissolved.” This is essentially the last chance for the company to prevent being compulsorily struck off the register.
(4) “At the expiration of the time mentioned in the notice the registrar may unless cause to the contrary is previously shown by the company, strike its name off the register.” Time is up – the company will now be dissolved.
(5) “The registrar must publish a notice in the Gazette of the company’s name having been struck off the register.” This is an official step, confirming the company has been struck off the register.
(6) “On the publication of the notice in the Gazette the company is dissolved.” Although the company has now been struck off, the liability of directors, managing officers, and members remain (section 7(a)). Also, the court still has the power to wind up a company which has been dissolved (section 7(b)).
Note: The notice periods for compulsory strike off were reduced by section 103 of Small Business, Enterprise and Employment Act 2015. This means there is less time than before for directors to take action to prevent their company from being forcibly dissolved by Companies House.
I’ve received a compulsory strike off notice – how can I stop it?
There are two key steps to preventing a compulsory strike off from going ahead:
- Reply to Companies House without delay, clarifying that the company is still active and trading. Also, make sure that they are aware of steps being taken to rectify any failure to submit the confirmation statement and/or annual accounts. If you need extra time to get your accounts in order, ask Companies House for an extension.
- Ensure that the annual accounts and confirmation statement (CS01) are submitted to Companies House without delay.
The Quality Company Formations Confirmation Statement Service, helps ensure you never miss a deadline, avoiding compulsory strike off, for just £59.99 + VAT a year. Customers can sign up to the service by purchasing it from the store on the client portal, and new customers can purchase it through our website under ‘Additional Services’. If you would like to know more about the service, you can speak to us today by calling +44 (0)203 984 5389 or by emailing [email protected].
What are the consequences of compulsory strike off?
Company ceases to exist – the main consequence of compulsory strike off is that, once the company has been dissolved, it will cease to exist as a ‘legal person’ and is therefore unable to trade or carry out any of the legal functions of a company.
Assets – any assets of the dissolved company will be deemed ‘bona vacantia’ and will automatically become the legal property of the Crown. This includes any money in the company’s bank account (which will be frozen).
Reputational damage – since compulsory strike off action becomes public record (i.e., notice is published in The Gazette), this may have a negative reputational impact upon the company, even if the company is not eventually dissolved. As such, it’s crucial that confirmation statements and annual accounts are filed on time. Make use of any tools which help with this process, such as the Confirmation Statement Service available from Quality Company Formations.
Directors – compulsory strike off can lead to enforcement action being taken against company directors individually, in addition to the company. It should be noted that it is a criminal offence to fail to submit confirmation statements or annual accounts, and directors can be prosecuted and fined personally. Furthermore, former directors of a company that has been compulsorily dissolved will face their own negative reputational damage and may find it more difficult to set up a new company in the future. In certain circumstances, directors may even face disqualification.
Personal liability for debts – if a company that has been struck off continues to trade, shareholders and directors are deemed to be trading without the protection of limited liability (i.e. because the limited liability company has ceased to exist). As such, they can be held personally liable for any debts incurred in the course of business.
