The dangers of mis-using the striking off process
Voluntary strike off
If you are looking to cease trading and close down your company, you may find that there are various options open to you. If your company is solvent, meaning there is no outstanding debt to creditors and is fully up to date with all tax and accounting liabilities, one option is applying to voluntarily strike off your company from the register at Companies House.
We recommend you seek advice from us prior to doing this as it may be more tax efficient for you to formally windup your Company rather than have it struck from the Register.
Companies House Guidance states that Before applying to strike off your limited company, you must close it down legally. This involves:
- announcing your plans to interested parties and HM Revenue and Customs (HMRC)
- making sure your employees are treated according to the rules
- dealing with your business assets and accounts
Who you must tell
Fill in an application to strike off and send a copy within 7 days to anyone who could be affected.
This includes:
- members (usually the shareholders)
- creditors
- employees
- managers or trustees of any employee pension fund
- any directors who didn’t sign the application form
By opting for strike-off, you are taking on full responsibility for ensuring you follow the correct procedure and that all your obligations have been met when bringing your company to a close.
Ensuring business assets are distributed among shareholders, informing all interested parties and HMRC of your decision to dissolve the company, and settling any outstanding liabilities such as Corporation Tax, PAYE, NI and any other creditors.
Failure to adhere to these responsibilities could see you facing personal penalty even if the company has already been dissolved. The company could be restored to the register should any of your creditors challenge the dissolution; this is often the case if you fail to pay your creditors in full, even if this is done inadvertently. Any subsequent liquidator shall consider the conduct of the director who may face disqualification proceedings or a claim for misfeasance.
In addition, HMRC have their own powers to pursue the directors personally if there is a failure to notify them of a liability and more so if there is deliberate concealment. See our previous article re. Schedule 41 of the Finance Act 2008
What is an Objection to a Striking off Application?
While a company owes HMRC outstanding tax, HMRC are unlikely to let the company be struck off the Register without payment of the outstanding debts. In fact, any creditor can object and request that the striking off action be suspended until an outstanding liability have been paid. If this happens a director will receive a letter informing them that the Compulsory Strike off is suspended.
An objection can be disappointing for directors who are genuinely trying to close down a failed venture and not deliberately avoiding paying tax. However, the process is required to prevent unscrupulous individuals from trading and subsequently allowing their company to be struck off whilst avoiding paying tax and other liabilities owed.
What do you do if you Receive an Objection from HMRC or other creditors
Should directors receive objection to striking off they will need to pay the tax arrears or other such liability immediately
However, directors who intend to settle their liabilities should be cautious with the funds they use as the company may be deemed to be trading and then a strike-off application would be denied. One of the requirements of the process is that the company is inactive for 3 months before it is removed from the Register.
If the company simply can’t afford to pay its tax bill due to insolvency, liquidation rather than striking-off is the appropriate route to closure. If the company is insolvent, directors should withdraw the application and seek professional advice from an insolvency practitioner.
An Involuntary Strike-off
The Registrar of Companies may choose to take striking off action against an apparent dormant company if it has failed to file its annual return and accounts. In such circumstances creditors may also object to the striking off. Companies House shall decide whether the striking-off will proceed and the creditor has to provide evidence that it is actively pursuing the debt. In this scenario, Companies House shall suspend the striking-off process and monitors the application every few months.
If you would like advice on whether striking-off is the right procedure for your business please get in touch