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The temporary suspension of the compulsory strike-off process at Companies House has now been brought to an end.
The suspension was introduced earlier this year as one of the numerous measures to assist businesses with the impact of the COVID-19 epidemic.
With this in mind, what does a compulsory strike-off entail, and what is the process by which a company can be subject to a compulsory strike-off?
The Companies Act provides that a company can be removed from the Companies House Register if it is believed that the company is no longer carrying on a business or is no longer in operation. Once removed from the Register, a limited company will legally cease to exist.
The main reasons for compulsory strike-off involve issues of non-compliance, such as failing to file required documents at Companies House.
The Companies Registrar will send a minimum of two formal letters to the company, informing them that they have failed to file documents as required, and that the company faces removal from the Companies House Register if the failure is not resolved.
If Companies House does not receive a reply, it will then publish a first ‘strike-off notice’ in The Gazette, the official journal of public record. This is known as the ‘First Gazette Notice for Company Strike Off.’
This notice allows any parties involved with the business (such as directors, shareholders and third parties) a period of two months to respond and object to the striking off. If no objections are made, then the company is struck off from the register at the end of the two month period.
Once a company has been struck off, any undistributed assets still held will automatically be transferred to the Crown.
Directors of the company can face investigations into their behaviour, with the potential for them to be disqualified from acting as a director of a company for up to 15 years.
If the company continues to trade despite being struck off from the register, then the directors and shareholders will no longer be covered by the protection of limited liability, and will be personally liable for any debts and liabilities accrued.
What to do
If the company is still capable of trading, dealing with a potential strike-off is relatively simple. When Companies House requests that a company remedy a failure to file a required document, then an immediate reply with the required documentation will generally be the end of the matter.
If a strike-off notice has been placed in The Gazette, the next steps will depend upon whether the directors want the company to be dissolved.
When a notice has been published and the directors want the company to continue trading, a suspension application must be filed with Companies House, along with all the required outstanding documentation (and any filing fees or penalties) to bring the filing history of the Company fully up to date.
If the directors have no real objection to the company ceasing to exist, but still own assets in it, the directors will have to object to the strike-off so as to protect those assets from being transferred to the Crown. If the objection is successful, then a window opens during which the ownership of those assets could be transferred, or the assets themselves sold and the proceeds distributed amongst shareholders.
It can be tempting for directors of a struggling company to simply allow it to be struck off, as a relatively quick and inexpensive means to close it down but this should only be considered if the company has ceased trading, its assets have been realised and it has no debts or liabilities to consider. The temptation should otherwise be resisted if there are outstanding debts and liabilities, as it can lead to a very real risk of personal liability and director disqualification.
Additionally, if there are creditors that have not been paid off before the company is struck off, one or more of those creditors could have the company reinstated in order to instigate litigation or liquidation proceedings. If this happens, the directors may well be investigated for the way they managed the company and again, could face personal liability for company debts and the risk of being disqualified as a director for a period of time.
Stay up to date
The fact that a viable company can be potentially struck off from the Companies House Register for simply failing to respond to notices highlights the importance of responding to letters from Companies House promptly.
If you have any questions concerning your company, or if the compulsory strike off process has raised concerns for you, our hugely experienced Corporate and Dispute Resolution teams at Ansons are here to help.
Please get in touch with Emma Benniston, Associate Solicitor, at firstname.lastname@example.org or on 0121 716 3701 or Adam Pike, Associate Director, at email@example.com or on 01543 431197.
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