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The Difference Between a Voluntary and Compulsory Strike Off

Now that you’ve long established your company, tasks such as obtaining a registered office address and creating a business strategy may seem like a distant memory. However, you may find yourself in an unfortunate situation where that initial hard work didn’t quite pay off with this business venture, causing the possibility of a company strike off.

“Company strike off” (also referred to as company dissolution) is where you officially shut down your company and strike it off the register. Note, there are two forms of striking off a company: compulsory strike off and voluntary strike off. To help you understand and draw comparisons between both a compulsory strike off and a voluntary strike off, let’s define both types of strike off processes and explore the differences between the two.

What Is a Compulsory Strike Off?

Compulsory strike off is technically the result of failing to submit your company’s annual accounts or file your confirmation statement at Companies House. This suggests to Companies House that the company is on its way to a natural dissolvement and will soon cease trading, prompting the necessary steps for a compulsory strike off to begin. Subsequently, a compulsory strike off goes through a strict process under section 1000 of the Companies Act 2006 (entitled “Power to strike off company not carrying on business or in operation”). 

How Is a Compulsory Strike Off Processed?

Compulsory strike off is technically the result of failing to submit your company’s annual accounts or file your confirmation statement at Companies House. This suggests to Companies House that the company is on its way to a natural dissolvement and will soon cease trading, prompting the necessary steps for a compulsory strike off to begin. Subsequently, a compulsory strike off goes through a strict process under section 1000 of the Companies Act 2006 (entitled “Power to strike off company not carrying on business or in operation”). 

How Is a Compulsory Strike Off Processed?

Section 1000 of the Companies Act 2006 outlines a compulsory strike off accordingly:

(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.”

(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.”

(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.” 

(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.” 

(5) “The registrar must publish notice in the Gazette of the company’s name having been struck off the register.”

(6) “On the publication of the notice in the Gazette the company is dissolved.”

Note: Since the Small Business, Enterprise and Employment Act 2015 reduced the notice periods for compulsory strike, directors have less time than before to prevent a forcible company dissolvement by Companies House.

What Is a Voluntary Strike Off?

Unlike a compulsory strike off, a voluntary dissolution is when a company makes a conscious decision to close down and remove itself from the register. The company should apply to the register to be struck off and dissolved, under section 1003 of the Companies Act 2006

A company may choose to process a voluntary strike off for the following reasons:

  • Directors wish to retire with no succeeding individual taking over
  • Company is a subsidiary which is no longer required
  • The business is struggling to scale and succeed

A few requirements are needed for a company to strike off voluntarily:

  • A company cannot have traded or sold any stock in the previous 3 months
  • It cannot have changed names in the previous 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 important for directors who make an application for voluntary strike off to provide an application copy 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 (i.e. shareholders)
  • 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 managers or trustees of any employee pension fund
  • A director (who hasn’t signed the application form)

According to section 1006 of the Companies Act 2006, if copies of this application are not successfully provided to all the necessary parties, then a conviction with a maximum of seven years imprisonment and/or a fine may be served.

Things to Consider Regarding a Compulsory Strike Off

It’s vital that you successfully process any obligatory communication with Companies House and maintain good practice with the necessary bodies and parties in order to avoid the following implications:

Your company will cease to exist. Once you suffer a compulsory strike off, your company will cease to exist as a “legal person” and therefore cannot trade or exercise any legal company functions.

Assets will be lost. A dissolved company’s assets will be deemed “bona vacantia” and automatically become the legal property of the Crown. This includes any money in the company’s bank account (which will be frozen).

Reputation becomes damaged. Once your company is faced with a compulsory strike off, it becomes increasingly difficult to overcome the negative label attached to your business even if the dissolvement does not materialise. Remember, compulsory strike off goes on public record (with a notice published on The Gazette). Additionally, any former directors of a company that has been dissolved and may find it more difficult to set up a new company due to a reputational damage associated with a dissolved company.

Directors may face individual action. A compulsory strike off can lead to enforcement action being taken against individual company directors as well as the company. 

Personal liability for debts. If a company has been struck off but continues to trade, then the shareholders and directors will be deemed to be trading without the protection of limited liability since the LLP itself has ceased to exist. Therefore, they may be personally liable for any incurred debts.

Remember…

“Company strike off” and “company liquidation” are two different things. When a company is liquidated, it means that it’s in the process of selling off company assets in order to pay off creditors, e.g. creditors’ voluntary liquidation, compulsory liquidation or members’ voluntary liquidation. 

The actual dissolution will normally occur after liquidation, but can also occur without any accompanying liquidation. For additional information on company liquidation, see the government’s Liquidate your limited company advice.

For more information about a voluntary and compulsory strike off, or for any related assistance with setting up a company and registering a business address, contact Your Virtual Office London, today. 

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