What is dissolution or striking off a company?

What is dissolution or striking off a company?

When businesses talk about being struck off or dissolved then it means they are taking the formal action of closing the business down.

Technically it means that the company will be formally closed down (dissolved) and it is removed from the companies house register.

Striking off can be voluntary or compulsory – a voluntary strike off is when the company’s own directors choose to take the decision to dissolve the small business while a compulsory strike off is when a creditor petitions the high court to have the business dissolved because of outstanding debts.

A compulsory strike off is serious as not only could it make directors personally liable for debts, the company ceasing to trade and potential suspension or disqualification of up to 15 years for directors and it can be brought about for such minor offences as not filing accounts on time to companies house or failing to respond to reminders and warnings.

Why would a company look to dissolve itself?

Why would a company look to Dissolve itself

There can be many potential reasons why directors might want to close their business this way:

  • Speed – for directors wanting to leave or begin a new business, dissolution is one of the quickest ways to do so
  • Retirements – if it’s a family business and nobody is able to take over or there is no other succession plan for a company then it can be struck off as a way of closing efficiently
  • Conflicts – If directors are unable to solve disagreements between themselves and the company could suffer as a result then closing it this way and allowing the directors to go their own ways would be the most sensible
  • Unprofitability – the company has no viable or positive future ahead and striking off is the most realistic way of ending the business

Pros and Cons of striking a company off

PROS

  • Cheaper than other formal insolvency procedures such as administration and liquidation
  • Straightforward – directors can manage the process themselves
  • No directors investigation into their conduct leading up to the closure
  • The process is relatively quick compared to other procedures

CONS

  • Strike offs can be objected to easily by stakeholders and can be rejected for several reasons including suspected fraud or if the business is trying to dissolve even though it has outstanding debts
  • If improperly dissolved, companies can be revived up to six years after the striking off date
  • Directors of dissolved companies could be made personally liable for any outstanding debts if the business was found to have been struck off improperly
  • Under a system called Bona Vacantia, if the business has any outstanding assets attached then they will be assumed by the Crown estate instead of being distributed to directors or shareholders

How does a company manage a striking off?

One of the easiest ways to arrange a striking off is to consult an insolvency practitioner such as BusinessRescueExpert but one of the advantages of dissolution is that directors can do it themselves.

There are several steps to be followed, that a practitioner can complete or talk you through, but ultimately as long as the DS01 form is obtained from companies house, successfully completed and submitted with a £10 filing fee, then if there are no complications then the company will be dissolved and struck off.