What Is A Compulsory Strike Off? All You Need To KnowJanuary 25, 2021
You may be aware of companies being voluntarily struck off but in this article we’ll look at what a compulsory strike off means and what the consequences of it are.
What is a compulsory strike off?
Company directors can apply to have their company voluntarily struck off of the Companies House register and dissolved. They may do this if they want to retire, or if the company is a subsidiary they no longer need.
However, a strike off can also be compulsory. A compulsory strike off is a process whereby a company is forcibly removed from the Companies House register.
This process is set out under Section 1000 of the Companies Act 2006. This piece of legislation states that if the registrar at Companies House has ‘reasonable cause to believe that a company is not carrying on business or in operation’, they may begin the compulsory strike off process.
Following a compulsory strike off, the company will cease to exist as a legal entity.
Why would a compulsory strike off happen?
The Companies House registrar may initiate a compulsory strike off if they take the view that a company is no longer trading.
Usually, this will be due to the company’s failure to comply with some form of due protocol, for example:
- The company has failed to file annual accounts or statements
- The company has no appointed directors
- Post sent by Companies House to the company’s registered address is returned undelivered
In some cases, if a company is approaching insolvency or has ceased trading, its directors may fail to submit their annual accounts and intentionally allow a compulsory strike off to occur in order to close down the company quickly and inexpensively.
However, if the directors allow this to happen they may face serious consequences, including personal liability issues and disqualification from acting as a company director. In addition, they will not be able to claim entitlements like redundancy pay.
What happens when a company is struck off?
Before striking a company off the register, the Companies House registrar must send two formal letters to the company’s registered address to inquire whether it is still operating.
If the registrar receives no response to the letters, they will then publish a notice in the Gazette stating that they intend to strike off the company unless they are given reason not to.
This is known as the ‘first Gazette notice for compulsory strike off’. A copy of this notice will be placed on the company’s public record.
Following the first Gazette notice, the Companies House registrar will strike the company off the register unless they are given a reason not to within two months.
This means that if anyone objects to the company being struck off - for example, the company’s directors, shareholders or creditors - they have two months in which to act.
If Companies House does not receive any objections within two months from the date of the first Gazette notice, the company will be struck off.
The company will then be dissolved upon publication of a second notice in the Gazette.
From receipt of the first letter to the company being struck off, the compulsory strike off process usually takes around four months in total.
Compulsory strike off consequences
If you do not respond to inquiry letters from Companies House, your company may be forcibly struck off even if you’re still trading.
The consequences of this could be significant, and may include the following:
- Your company will cease to exist as a legal entity
- Ownership of any undistributed assets or cash will be automatically transferred to the Crown
- Contracts with suppliers and customers will be jeopardised
- The company will not be able to secure finance to rescue itself
- The company will no longer have the protection of limited liability if it continues to trade, so directors may face personal liability for the company’s debts
- The directors’ conduct may be investigated, which could lead to disqualification from being a company director for up to 15 years
As you can see, if Companies House initiates the compulsory strike off process and you want to continue trading, it’s vital to take swift action to prevent the situation reaching this stage.
What should I do if I’ve received a strike off notice?
Initially, if you receive an inquiry letter from Companies House asking you to submit outstanding documents or confirm that you’re still trading, you should respond immediately.
If you provide the requested information quickly, you’ll prevent Companies House from taking further action.
However, if the process has progressed as far as the first Gazette notice, the steps you take will depend on your intentions for the company:
- If you want the company to continue trading: You should apply to Companies House to suspend the strike off. You may also need to submit any outstanding documents, depending on the reason for the strike off.
If Companies House accepts your suspension application, you will be able to continue trading.
- You’re happy to dissolve the company: If you no longer want to keep the company open, you could allow the process to continue and the company to be dissolved.
However, this is only a viable option if the company has ceased trading and has no outstanding debts, and you’ve realised its assets.
If you fail to repay creditors before the company is struck off, a creditor may apply to restore the company in order to initiate formal liquidation. This could result in serious consequences for the company directors.
What is a compulsory strike off - Conclusion
Compulsory strike off is a process whereby a company is forcibly removed from the Companies House register and can have severe consequences for companies.
If you respond promptly to any enquiries from Companies House, you should be able to avoid an unwanted strike off. However, if you find yourself in this situation and aren’t sure what to do, we can help.
Whether you want to continue trading or need advice on the best way to close your company down, we can discuss your options and help you find the best route forward.
Get in touch with us today for a free, no obligation consultation.