There are two methods of removing a company from the register maintained by Companies House: compulsory or voluntary strike off. These are mutually exclusive and their use depends on the particular circumstances of a limited company.
We will take a look below at the differences of having a company struck off the register compulsorily or voluntarily.
What is voluntary strike off?
Voluntary strike off is the process of removing a company from the register and essentially shutting the business down on purpose. This is permitted under section 1003 of the Companies Act 2006 which states: “On application by a company, the registrar of companies may strike the company’s name off the register.”
Normally the reason for voluntarily striking off a company is to remove the administrative annual filing burdens of a company which is no longer trading – possibly due to retirement of the directors, or because the business has been abandoned or restructured within a new company.
To meet the criteria for voluntary strike off set out under sections 1004 and 1005 of the Companies Act, a company must not:
- have traded or sold off any stock in the last 3 months;
- have changed names in the last 3 months;
- be threatened with liquidation; or
- have any agreements with creditors (e.g. a Company Voluntary Arrangement).
If it meets these criteria, a company can proceed with closing down the business by ensuring that:
- tax and debt liabilities have been dealt with
- employees have been made redundant and paid their final wages (and HMRC have been informed that the company is no longer an employer)
- business assets have been distributed amongst shareholders
- final accounts have been submitted to HMRC
- and the final tax return has been submitted to HMRC and Companies House
Once the company has concluded its business affairs, it can proceed with voluntary strike off by filling in and submitting form DS01. This form must be signed by a majority of company directors.
A copy of the application to strike off the company must be sent within 7 days to anyone who could be affected, including:
- managers or trustees of any employee pension fund; and
- any directors who didn’t sign the application form.
Assuming the form has been filed correctly, the request for the company to be struck off will be published as a notice in the local Gazette and, after two months and if no one objects, the company will be officially struck off the register. A second notice will then be published in the Gazette to confirm that the company has been dissolved.
Please note: Voluntary strike off should not be confused with voluntary liquidation which we will consider separately, below.
What is compulsory strike off?
In contrast to voluntary strike off, which is an active decision by the company to wind itself up, a compulsory (or forced) strike off is imposed upon the company by the registrar. Compulsory strike off is dealt with under section 1000 of the Companies Act and it is generally a consequence of persistent failures to file confirmation statements and annual accounts.
In practice, forced strike off can be an intentional outcome for companies which are no longer trading (i.e. the owners may be aware of reminders of missed filings and ignore these on purpose). But it can also occur if a company fails to update its registered office address and is unaware of reminders from Companies House.
Although compulsory strike off leads to the same eventual result as voluntary strike off (i.e. the company is dissolved), there can be different implications for directors, and forced strike off should generally be avoided (see below).
Companies House can take action to compulsorily strike off a company from the register if it “has reasonable cause to believe that a company is not carrying on business or in operation.’ For example, if:
- it has not received company documents (e.g. annual accounts or confirmation statements) that should have been submitted;
- mail that it has sent to a company’s registered office is returned undelivered; or
- the company has no directors.
The first step which the registrar will take is to “send to the company a communication inquiring whether the company is carrying on business or in operation” (s 1000 (1)).
If Companies House has not received any answer within 14 days, it must “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” (s 1000 (2)).
If there is no answer for another 14 days – or if the company simply states that it is no longer trading – 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” (s 1000 (3)).
This will follow with compulsory strike off from the register, and a publication to this effect in the Gazette, whereby the company will be considered to have been dissolved.
What are the main similarities between compulsory and voluntary strike off?
1. Dissolution – both compulsory and voluntary strike off have the same end result: the company is dissolved. 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.
2. Bona Vacantia – any assets of a company which has been struck off, voluntarily or compulsorily, which have not been distributed prior to dissolution, will be deemed ‘bona vacantia’ (i.e. they will automatically become the legal property of the Crown).
What are the main differences between compulsory and voluntary strike off?
1. Agreement – voluntary strike off requires action by the company (i.e. submitting form DS01) which has been agreed/signed by the majority of directors. Compulsory strike off is generally a result of inaction by the company and does not require any agreement or vote from the directors (if any still exist).
2. Criteria – a company is unable to apply for voluntary strike off if it does not meet the criteria set out under sections 1004 and 1005 of the Companies Act (e.g. if it has traded in the last three months or is threatened with liquidation, etc). These criteria do not apply in the case of compulsory strike off.
3. Negative repercussions – the directors of a company which applies for voluntary strike off will be unlikely to suffer any reputational damage, whereas legal action can be taken against the directors of a company which has been forcibly struck off the register (see below).
Why should compulsory strike off be avoided?
Although both forced and voluntary strike off lead to the company being dissolved, there are negative implications when the strike off is compulsory. In particular, forced strike off can lead to enforcement action being taken against company directors individually.
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 which has been compulsorily struck off may face damage to their reputations and could find it more difficult to set up a new company in the future. Directors may even face disqualification orders.
If Companies House begins compulsory strike off action as a result of maladministration, even if the company prevents itself from being dissolved, it may suffer reputational damage, e.g. as a result of publication in the Gazette becoming part of public record.
Please note: If a company does not realise it has been compulsorily struck off and it carries on trading, shareholders and directors can be deemed to be trading without the protection of limited liability and, as such, be held personally liable for any debts incurred in the course of business.
What is the difference between compulsory and voluntary strike off and compulsory and voluntary liquidation?
Limited companies which need to be wound up, either as a result of insolvency or due to other circumstances, may be put into liquidation. This will result in the cessation of trading, the sale of any assets to pay creditors and being struck off from Companies House’s public register.
There are three types of liquidation, two of which are voluntary and one of which is compulsory:
- Creditors’ Voluntary Liquidation (CVL) – this is the most common type of liquidation and needs to be proposed by directors and agreed by 75% (by value of shares) of shareholders. CVL is often the fallback option if a Company Voluntary Arrangement (CVA) has failed to be agreed.
- Members’ Voluntary Liquidation (MVL) – although this is a type of liquidation, it does not apply to insolvency. Instead, it is a procedure used to wind up a solvent company (e.g. due to retirement).
- Compulsory Liquidation – a company with debts of £750 or more can apply to the court to be liquidated. A director can ask the court to wind up the company, as long as 75% (by value of shares) of shareholders agree.
Although compulsory and voluntary liquidation result in the company being struck off the register, this is distinct from compulsory and voluntary strike off which have been described in the previous sections.