Have you remembered to file your annual accounts and annual return with Companies House? Have you got no further use for your company?
If you responded no to the first question or yes to the second question, read on to find out about the different ways a company can be struck off. Of the 2,663,100 companies that were registered as trading in the UK last year 283,400 companies were dissolved.
We provide our top ten tips for companies looking to strike off their company voluntarily and what the risks are of a forced strike off.
1. Difference between a forced strike off and voluntary strike off
A voluntary strike off is when a company applies to be struck off the register and dissolved under section 1003 of the Companies Act 2006, usually because the entity is no longer trading.
A forced strike off, is when the registrar forces a company to be struck off. The registrar may take this view if, for example: he has not received documents such as the annual accounts or the company has no directors.
2. Forced strike off is riskier
Before striking a company off the register, the registrar is required to write two formal letters and send notice to the company’s registered office to inquire whether it is still carrying on business or in operation. If you want your company to remain on the register, you must reply promptly to any formal inquiry letter from the registrar and deliver any outstanding documents.
The risk is that if you ignore these letters and your company is struck off, you (a) may be at risk of being fined/prosecuted and (b) will not have an opportunity to sort out the assets and share capital, leaving the company in a powerless position once it has been struck off.
3. Conditions for voluntary strike off
In order to voluntarily wind up your company, you need to ensure that in the previous three months, the company has not traded, changed its name, made a disposal for gain in the normal course of trading, or engaged in any activity unless it is for the purpose of striking off. Further to this a company cannot be wound up if it is currently in administration, subject to a scheme of arrangement or CVA, or has a receiver or manager appointed over the company’s property.
4. How to prepare for striking off your company
If your company has creditors, members etc, you should warn them before applying as they have the right to object to the company being struck off. You should deal with any loose ends, such as closing the company’s bank account, the transfer of any domain names – before you apply, it is a good idea to contact HMRC to ascertain whether any taxes or duties are due and review contracts to see if they should be assigned, novated or terminated.
5. If I don’t prepare, who will own the assets?
From the date of dissolution, any assets of a dissolved company will be “bona vacantia”. Bona vacantia literally means “vacant goods” and is the technical name for property that passes to the Crown because it does not have a legal owner. The company’s bank account will be frozen and any credit balance in the account will pass to the Crown.
6. Take care with Share Capital
It is a cardinal principle of company law that the share capital of a limited company belongs to the company and not its shareholders.
If material amount of issued share capital, the company should either be put into liquidation prior to dissolution or the company should take steps to legally reduce the amount of the share capital prior to dissolution.
The Treasury Solicitor will waive the Crown’s right to share capital/any funds distributed to the former members prior to dissolution, providing certain conditions are satisfied.
7. What is the process to strike off?
8. Can I change my mind?
Yes you can! The directors must withdraw the application by sending the ‘withdrawal of striking off application by a company’ to the registrar if they change their mind. They must also do this if the company ceases to be eligible for striking-off (as set out in 3 above), such as trading or being subject to insolvency proceedings.
The Companies Act 2006 contains the full circumstances that mean you must withdraw an application for strike off.
It is an offence to fail to withdraw an application if the company ceases to be eligible for striking off (as set out in 3 above). It is also an offence to provide false or misleading information in, or in support of, an application or not to copy the application to all relevant parties within seven days.
The offences attract a fine of up to a maximum of £5,000 on summary conviction (before a magistrates’ court or Sheriff Court) or an unlimited fine on indictment (before a jury). If the directors breach the requirements to give a copy of the application to relevant parties and do so with the intention of concealing the application, they are also potentially liable to not only a fine but also up to seven years imprisonment. Anyone convicted of these offences may also be disqualified from being a director for up to 15 years.
However, the prosecuting authorities must to take account of various matters when deciding whether to prosecute.
10. Restoring the company
The registrar can only restore a company if he receives a court order, unless a company is administratively restored to the register. As a general rule restoration by court order can be applied for up to six years from the date of dissolution. There are numerous people who can make an application to have the company restored; these include a former director, member, creditor or liquidator.
Any company which is restored to the register is deemed to have continued in existence as if it had not been struck off and dissolved.
If your company is facing being struck off by the registrar or you are considering striking off your company voluntarily; it is sensible to take legal advice to ensure that you follow the correct procedure and avoid any penalties.
For more information as to how we can help you (including arranging a free consultation), please contact your usual Fox Williams contact.
You can register online or follow us on Twitter or LinkedIn to receive our latest news, events and publications.