Voluntary and compulsory strike-off – a comparison

Striking off a limited company refers to the process of removing the company from the register at Companies House. Following the strike-off, the company ceases to exist. However, some measures can be taken to restore a company to the register by applying to court.

There are two ways in which a company may be struck off, either voluntarily or by compulsory strike-off action.

What is compulsory strike-off?

Compulsory strike-off action to remove the company from the register is commenced by the Registrar of Companies where it has reasonable grounds to believe that a company is no longer trading. This is normally where directors have failed to file confirmation statements and company annual accounts or notify Companies House of a change to the company’s registered office etc on time. It will also be likely that the Company no longer has at least 1 active director.

Compulsory strike-off consequences

Although compulsory strike-off action leads to the same eventual outcome as voluntary strike-off, that being the company is dissolved, there are different implications for directors where compulsory action is taken and this should generally be avoided.

One potential risk of having a company dissolved by compulsory strike-off is that a director may become personally liable for a debt of the company following its dissolution if, for example, a director has signed a personal guarantee. Also depending on the circumstances surrounding the compulsory strike-off, the director could risk being investigated by the Government’s insolvency service and disqualified from acting as a director in the future.

An example of a director running the risk of being investigated by the Government’s insolvency service and disqualified from acting as a director in the future is under powers granted by the Ratings (Coronavirus) and Directors Disqualification (Dissolved Companies) Act 2021. If a company that has a bounce-back loan is struck off, the director could be found personally liable for the entirety of the bounce-back loan after the company is struck off the register.

What is a Gazette first notice for compulsory strike-off?

Prior to commencing compulsory strike-off action, Companies House is required to formally notify a company of the above breaches and give the opportunity to rectify matters. If Companies House does not receive a response within a period of 14 days, it will file a First Gazette notice for strike-off. This would be in the Edinburgh Gazette where the company is incorporated in Scotland, or the London Gazette where the company is incorporated in England. This online publication is deemed as a public notice.

The Gazette notice will set out that the company will be struck off the register within 2 months and as such this gives a short window for any relevant party, such as a director, shareholder, or creditor of the company to object to the company being struck off. An appropriate objection will be accepted, on the basis that action is taken to rectify the position, such as bringing the filing requirements up to date. In this case, strike-off action will be discontinued. If however there are no acceptable objections, the company will be dissolved.

What is voluntary strike-off?

Voluntary strike-off is initiated by the company and is permitted under section 1003 of the Companies Act. The company may be dormant or has reached its natural end by fulfilling its purpose or due to the retirement of its directors. Normally strike-off action is used to remove the administrative burdens of a company that no longer trades.

A company may not apply for voluntary strike-off if it does not meet the following criteria, as set out under sections 1004 and 1005 of the Companies Act:

1. Has traded in the last 3 months;
2. Has changed names in the last 3 months;
3. Has had liquidation proceedings brought against it; or
4. Is subject to the terms of a Company Voluntary Arrangement

Carrying out the voluntary strike-off a company ensures that:

• All liabilities, including tax liabilities, have been dealt with;
• All assets have been disposed of and surplus proceeds distributed to its shareholders;
• Employee entitlements have been paid; and
• The company’s file at Companies House is up to date

Once these affairs have been concluded, the company can proceed with voluntary strike-off by submitting form DS01 to Companies House. The form must be signed by a majority of its directors. In addition, the form must be sent to anyone who could be affected such as:

• Shareholders
• Directors
• Creditors
• Employees

Notice will be published by the Register of Companies in the Edinburgh Gazette where the company is incorporated in Scotland, or the London Gazette where the company is incorporated in England. If no objections are received within two months the company will be dissolved.

What are the main similarities between voluntary and Compulsory Strike-Off?

1. Dissolution – both compulsory and voluntary strike-offs have the same outcome, that the company is dissolved, or, in other words, will cease to exist as a legal entity;
2. Any remaining assets held that have not been distributed to its creditors or shareholders when either voluntary or compulsory strike-off action is completed will automatically become the legal property of the Crown.

What are the main differences between voluntary and compulsory strike-off?

1. Voluntary strike-off is seen as a proactive step by the officers of the company which requires the agreement of the majority of its directors. Compulsory strike-off action is commenced by the Register of Companies, as a result of the company’s directors’ failure to adhere to their statutory duties to file, and is non-voluntary by nature and therefore has negative connotations attached;
2. There are reputational issues at risk for the directors of a company where compulsory action is required due to their failure. However, there are unlikely to be any such issues suffered where voluntary strike-off action is appropriately taken.

What do I do next?

If you are considering applying for a limited company to be struck off voluntarily or have received notification of compulsory strike-off action, you should seek advice immediately to consider fully all the options available to you. Our Restructuring & Recovery team is available to assist – arrange a free consultation today.