What is a Compulsory Strike Off and How to Stop It?
A compulsory company strike-off can stop a company from trading and performing other company activities. In serious cases, the company's name can be removed from the Companies House records of companies and so your company has been banned.
When companies fail to perform their company duties or stop trading, they can attract a compulsory company strike-off from Companies House and this is a serious issue that needs to be addressed if the strike-off is not proper.
What is Company Strike Off
Company strike-off can be described as the involuntary (sometimes voluntary) removal of a company from the Companies House official register. A strike-off will stop all activities of the company and by doing so, the company will cease to exist as a corporate body.
A company strike-off is an involuntary dissolution of a company done by the authorities because the company has failed to meet a certain compulsory demand. As a company, you can avoid a strikeoff and ensure you follow all the rules and meet all the demands of Companies House.
In the case of a dissolution, the company writes to Companies House regarding their decision to voluntarily close down the company. The dissolution must be written and signed by the company's directors and shareholders and also must be accepted by the creditors of the company before it can be dissolved.
But in a company strike-off, Companies House offers the company a small period to deliberate and confirm if the conditions for the strike-off are correct and if correct the company will be removed from the official register at Companies House.
In the case of a liability owed by the company, the company's assets will be sold off to pay off debts of the company.
When as a company, you receive a Strike Off letter from Companies House, then you either proceed to accept the strike off or decline the strike off.
Accepting the strike-off means you've accepted that your company be closed down and can no longer trade. Rejecting the strike-off means that you want to go through the process of bringing your company back to trading or the strike-off letter was an error.
Sometimes, a letter can be sent to your company while almost all the company's records are up to date and intact. It is always important to keep all company records intact in case it is needed or you need to show them to investigators or Companies House proving that you filed the records.
It is left for the company to agree to the Companies House strike off and follow the protocols to finally dissolve the company. However, if the company still wants to continue trading, they have to go through the processes put forth by Companies House to revive the company.
If as a company you do not plan to trade for a couple of years or some period, it is better to register the company as dormant so all trading activities can be held and some filing will be stopped when the company is revived.
Once a company is dormant and is not trading, the company house cannot send in a strike-off letter to the company. Most taxes and annual accounts will also be placed on gold by both the Companies House and the company.
Read this if you would like to know how to use Companies House services.
Reasons for Company Strike-Off
Before a company can be struck off, there must be certain reasons and requirements they did not meet to warrant the strike off. These requirements can range from financial responsibilities and annual reports.
No matter how little the issue is, once the company does not heed the warning and reminders by the Companies House before the Strike notification, and even after the notification the company does not take any necessary action, then the Companies House can take legal action and close them down permanently.
Under What Circumstances Can Companies House Strike-off Companies?
Companies House can strike off companies under the following circumstances
1. Failure to File Annual Accounts
As a limited company, it becomes mandatory to send in annual accounts to the company's house after every company year. The annual account should contain all the necessary information and activities of that company during that year.
The information included in an annual account includes the income, expenses, debts, liabilities and purchased assets of the company. This account is very essential and failure to submit your annual account might accumulate charges.
After the charges accumulate for a while, Companies House will send a notification to the company as a reminder to file the accounts and if the company fails to file annual accounts, Companies House will then send a strike-off notification to the company.
2. Failure to Submit Annual Confirmation Statement
Every year, companies are supposed to send a confirmation statement to Companies House stating that all the information in the Companies register is correct and updated.
An annual confirmation statement is sent to Companies House confirming that all the information about the company's directors, subscribers, shareholders and secretaries is correct and has been updated.
If a company fails to self a confirmation statement to Companies House, the company will receive a reminder to submit their confirmation statement and if they fail to do so, they will receive sanctions which might be in the monetary form from Companies House and if they still fail to submit after other warnings, Companies House can strike off the company
3. Conformation to Legal Requirements
As a limited company, you are supposed to follow all the legal requirements of the Companies House. Legal requirements range from tax payments to changes in relevant or important details of the company.
All companies must abide by the rules and regulations of Companies House and HMRC and failure to do so will attract sanctions as critical as a forceful company strike-off
4. Absence of Directors
A limited company must have directors and shareholders or guarantors. In company formation, a company must register a director before the incorporation can take place.
A director is a mandatory member of a company and if a company removes a director, they must register another one if there's only one director in the company. A company can remove its directors under various circumstances but must make sure there are other directors available in the company.
If a company has no registered director(s), Companies House can strike off the company. Company House will first send a warning to the company and if the company appoints a new director, the strike-off will not hold but if the director's position is still vacant, the company will be struck off.
5. No Trading Activities
A company can only cease trading if they register their company as dormant at Companies House. If a company is not registered as dormant, then the company must continue all trading activities except in the case of a dissolution.
If Companies House finds a company that is no longer trading, they have the authority to send a strike-off warning to the company and if nothing is done about the warning, Companies House can go ahead to strike off the company completely.
When the warning is given, the company can reach out to Companies House to follow any necessary process to stop the strike off of the company.
What are The Process of Strike-Off?
If Companies House discovers any act that will lead to a strike-off, they send two formal warnings to the company in question. These warnings will contain a detailed explanation of why the strike-off is considered.
When the first letter is sent, Companies House will await a response from the company and if no response, a second letter will be sent to the company again warning them about the strike off.
Once the second letter has taken some time and no response has been received by Companies House from the company, then Companies House can then put out the warning for a strike-off in the Gazette.
What is a Gazette?
A gazette is a publication by the Companies House stating online profiles of businesses in the UK. The gazette also publishes various news regarding companies registered with the Companies House.
After Companies House has successfully sent out two letters to the company and no response is received, they go ahead to publish the strike-off warning in the Gazette.
If the Gazette is published, directors, persons with significant control (PSC) or creditors can opt to counter the strike-off warning and try to meet the demands of Companies House to keep the company trading.
The strike-off warning is published in the gazette after 14 days of sending the second letter with no reply. Once the warning is published in the Gazette, Companies House makes the warning public with a clear statement of the reason for the strike-off.
If after 2 months of publication of the warning in the Gazette, the company does not come to counter the strike-off, then Companies House will strike off the company and freeze all bank accounts of the company.
Within those two months, if the company reaches out to Companies House to disband the strike-off and follow the necessary procedures given to them by Companies House, then there might be a reconsideration for the company.
After receiving a strike-off warning either in the form of letters or a Gazette, there are some necessary steps you need to take.
The steps you are going to take solely depend on whether you want to continue with the strike-off or you are against the strike-off posed by Companies House.
In terms of when your company is accepting the strike off by Companies House, then you can proceed to go through a normal dissolution process and close down your company but this must be with the consent of the directors of the company.
Read this to learn more about how to dissolve a UK company.
What to do if you Accept the Strike-off?
Here is what to do if you're accepting the strike-off.
- Your company's director(s) must sign and agree to the decision to close down the company
- Your company must be free from any outstanding debts and liabilities
- All assets of the company have been distributed and realised by the directors, shareholders and persons with significant control (PSC) of the company
- All trading activities have been stopped
If the company's directors agree to close down the company and there is an outstanding debt or liability, then the company will have to go through a normal company dissolution process and undergo a liquidation to sell out all company's properties and assets and pay out outstanding debts.
The company cannot be dissolved or struck off unless all outstanding debts and liabilities have been sorted out
What to do if you are Against the Strike-off?
However if your company is against the strike-off warning sent by Companies House, you have to go through the following processes especially if you believe the call-off is not supposed to and there was a mistake.
You will need to send a suspension application to Companies House and make sure to rectify any pending issues your company has. Issues like
- Missing accounts; make sure to file them
- Sending relevant confirmation statements.
- A proof that the company is currently trading and has not fallen short of any rules of Companies House and HMRC.
As long as your company can prove to Companies House that the company is still trading and the strike-off was not just, Companies House can suspend the strike-off for a while and monitor the activities of the company during that time, or they can stop or discontinue the strike-off completely.
What is the Effect of Compulsory Strike Off?
If your company is struck off compulsorily, the following will happen
- The company will be closed down
- The strike-off will be permanent and cannot be disputed
- No financial support can be rendered to you in regards to your company
- Investigation of directors to what causes the strike-off might occur
Once your company receives a strike-off warning, it is very essential to act with immediate effect to avoid a strike-off by Companies House.
Once no action is taken by the company, the company will be closed down permanently and nothing can revive the company again.
Types of Strike Off
The process of issuance of a strike-off is the same but the approach to which the company takes in regards to the strike-off differs.
1. Voluntary Strike Off
In a voluntary strike-off, the company accepts Companies House warning letter and decides to willingly close the company. In this case, the company then undergoes the dissolution method rather than the strike-off.
The company's directors and persons with significant control (PSC) must come to a positive conclusion about the dissolution or else the company cannot be dissolved. The dissolution process, unlike strike-off, is a willing process of closing down a company by the company members.
In a dissolution or voluntary strike-off, the directors have an official meeting and vote in favour or against the dissolution. After the decision is made, then all outstanding debts and liabilities including pending salaries of employees and dividends of shareholders must be paid out.
If the debts of the company cannot be paid, then the company will have to undergo a liquidation to sort out the debts.
2. Involuntary Strike Off
Unlike the voluntary strike-off, in involuntary strike-off, the Companies House decides for the strike-off and not the company. It is also called a forceful strike-off because the company is closed down by force by the Companies House.
All assets of the company will be seized and all accounts of the company will be frozen and blocked.
If the company is struck off involuntarily, then the company cannot be revived. But if the company was struck off voluntarily, the directors can resume trading activities in the company within a certain period or else after that period the company will be closed down permanently.
Involuntary strike-off is often due to no response from the strike-off warning letters or the warning published in the gazette. If a company does not respond to a strike-off warning, then the company will be struck off involuntarily.
How To Stop a Strike-Off
As a company, you can dispute a strike-off from Companies House and go through some processes to resume trading. After disputing a strike-off, the company will be under suspension for a while and after that, active supervision Will be done by Companies House to decide if the strike-off will continue or be discontinued.
If the strike-off is discontinued, then the company is free and can resume trading without suspension or supervision.
As a company, if you receive a strike-off warning from Companies House, even if it is the first or the second letter, you can go through some process to dispute the strike-off.
1. Response Letter
When your company receives a strike-off letter from Companies House, it is better to respond to the message than ignore it.
You have to respond to the letter and send a message to Companies House acknowledging the letter and you can either give an immediate reply or reply after having a meeting with your company's directors and other significant members of the company.
In the letter, you have to specify if the reason for the strike-off was an error by Companies House or from the company's end. If there is a missing account, you'll have to file it.
2. Fix the Issue
If the reason for the strike-off is an error from the company's end, then the company has to fix the issue and send a confirmation statement to Companies House stating the issue and the solution.
If the company has an overdue account, confirmation statement or filing available, the company has to attend to the overdue records and fix them to avoid a strike-off. After fixing the issue, the strike-off can be disputed or the company will be suspended.
Roles of Creditors in Strike-Off
A creditor can stop a strike-off if the company is in debt. As long as the company has not cleared the outstanding bills, the company cannot be closed down.
If the company still has valuable assets that can be sold out to pay out the creditors, then the company will contact a qualified liquefier to liquidate the company and pay off the creditors.
After liquidation, if the company has a remainder of the assets or money realised from disposing off the company's assets, then the company's shareholders can share any remaining assets or money left.
If the company is not able to pay off the creditors, then it must look for means to meet the demands of the creditors. If the company is in debt if taxes are HMRC, then they must pay up all their taxes before the company can be struck off or closed down.
A company can never be struck off or closed down with outstanding debts as long as the company has valuable assets that can be disposed of to pay up those debts.
Dissolution and Strike Off
We must note that dissolution and company strike-off are two different terms.
Strike-off refers to the closing down of a company done by Companies House as a result of the company not meeting specific requirements of Companies House. Strike-off can also be a result of a company's unpaid taxes at HMRC.
However, when a company strike-off warning has been issued to a company by Companies House, and the company decides to willingly strike off the company, they can choose to go through the dissolution process to close down the company.
If a company is closed down through the dissolution route, then the company can be revived or resume trading in the space of 2 months before the company is finally permanently closed down.
Unlike a strike-off, a dissolution is requested by the company's director(s) to Companies House requesting that the company be closed down and stop trading activities.
Read this article to learn how to restore a dissolved company in the UK
Conclusion
When a company fails to meet the demands and requirements of Companies House and HMRC, Companies House has the authority to forcefully close down the company and cease all trading activities. Before Companies House can close down a company, they will send two strike-off warning letters to the registered address of the company and if no response is received, Companies House will publish a strike-off warning in the Gazette. After publishing the warning in the gazette and still no response from the company, Companies House can close down the company permanently, and cease all company's assets and all accounts of the company will be frozen. If you have any questions about compulsory strike-off, kindly contact one of our experts here.