Active companies, or companies that are still trading, are listed on a register held by Companies House. This makes it easy for other firms and individuals to see whether a company is operational or not. When a company closes or stops trading it becomes a struck off company on the register.
The Strike Off Process
Companies can apply to have their name struck off the register. Why might they do this? The reasons include:
- Directors want to retire and there’s no one else to run the company
- The company is an unnecessary subsidiary
- The company’s aims are simply no longer feasible
- The company has been dormant for a long time
Companies House, who are responsible for the register, reviews the applications and decides whether to pursue any charges for penalties such as late filing. When a company is struck off the register, creditors and other interested parties can’t pursue it for outstanding debts, securities, or charges.
Voluntary Strike Off
Company directors are responsible for triggering the procedure. The directors, or a majority of directors, begin the process. This is known as a voluntary strike off. It’s not always possible to apply for a strike off. Legislation stops companies from taking unfair advantage of the procedure.
Exceptions to the Strike Off Procedure
A company cannot apply for a strike off if certain sections of the Companies Act 2006 apply. Importantly, companies can’t be struck off if they’re subject to, or about to be subject to, insolvency proceedings. These proceedings include liquidation, if the petition hasn’t been dealt with yet.Similarly, companies can’t be struck off if they’re subject to section 895 compromise arrangements, or if they have bearer shares in issue. Bearer shares are defined as shares subject to a warrant, but there’s no registered shareholder in the member register.Sections 1004 and 1005 of the Act set out the main circumstances in which the registrar will reject an application.Companies can’t apply to be struck off the register if, within the last 3 months, they have:
- Traded or otherwise carried on business
- Changed company name
- Engaged in any other activity with important exceptions
A company planning to be struck off the register may need to engage in some business activities to tie up its operations. These actions are permitted by the Act, and the company can still apply to be struck off. The actions include:
- Making an application for strike off, or taking steps to decide whether a strike off is appropriate.
- Concluding the affairs of the company, such as settling trading or business debts
- Complying with any statutory requirement
- Selling property or rights that, immediately before it stopped trading, the business planned to hold or sell or otherwise use for commercial gain, in the normal course of its business operations
What does this mean? Well, a company selling for apples, for example, can’t sell apples during the 3-month period, because this means it’s still trading, but it can sell the delivery trucks, or the factory warehouse.
Is a Strike Off Permanent?
The short answer is no. Unsurprisingly, creditors may apply to have a company put back on the register if they want to bring proceedings against them for unpaid debts. In other words, businesses should know that the strike-off procedure can’t be used to avoid formal insolvency proceedings if these are needed. The legislation and strike off procedures are designed to facilitate the speedy closure of dormant companies without letting those same companies avoid their corporate responsibilities.