The Strike Off process is cheap and relatively easy to implement. However a company can only be closed using this procedure in certain circumstances. Generally speaking the company must be dormant and have no assets or creditors. Strike Off is not normally suitable if the company owes money it cannot pay.
- Can Strike Off be used if a company is still trading?
- What if the company still has assets or cash?
- Is Strike off an option if a company has outstanding creditors?
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Use Strike Off if a Company is dormant
You can only apply to strike off a company if it is dormant. Dormant means the company must not have undertaken any trading activity at all in the last 3 months. In addition it must not have made an application to change its name.
A trading company is generally defined as one which is carrying on in the normal course of its business. For example a company in business to sell apples is trading if it is continuing to sell apples. If it is dormant it will not be undertaking this activity. However it could still sell its assets such as the vehicle it once used to deliver the apples or the warehouse where they were stored.
It is not considered trading if during the last three months the company has paid for professional advice to help it decide whether or not strike off is suitable. It is also not considered trading if the business has paid debts.
Use Strike off if the Company has no assets
A company cannot be struck off if it still has assets. In other words if it has any goods, property or cash in the bank then it cannot be closed using this process. If the directors wish to use Strike Off the assets must be disposed of before the 3 months dormancy period can start.
Assets can be sold and debts repaid with the proceeds during the dormancy period. This is as long as the sale is not considered the normal business activity of the company.
If there are no outstanding debts but the company still has considerable assets or cash Strike Off should not be used. The company should be closed using Members Voluntary Liquidation (MVL).
Strike Off should not be used if the company has outstanding debts
If a company has debts that it cannot afford to repay Strike Off is generally not a feasible option. The issue is that the associated creditors are likely to object and block the process. Where debts are outstanding the directors will normally need to liquidate the company. Alternatively they could wait for a creditor to start winding up proceedings.
Even if none of the outstanding creditors objects Strike Off is still risky. After it is struck off any outstanding creditor still has up to 20 years to apply for the company to be re-instated. Formal insolvency proceedings can be issued against it. The directors can also still be accused of wrongful trading.
Strike off is also unsuitable if the company has outstanding property or equipment lease or HP agreements. These are not terminated as a result of a company being struck off. In fact their existence will normally prevent the application being processed by Companies House.
