Does Compulsory Strike Off For A Company Work?

What is the rationale of the compulsory strike off procedure?

Under Section 1000 of the Companies Act 2006 Companies House can strike off a company that it considers is not carrying on a business or in operation.

What Is Compulsory Strike Off?

The process enables Companies House to issue a notice to the relevant company making inquiry about its dealings. If there is no response within 14 days then a second 14 days notice is issued. A failure to respond will then trigger a Gazette notice which means that 2 months later the company would be dissolved unless cause to the contrary can be shown.

In essence, the compulsory strike off procedure is commonly used to incentivise company directors to bring their accounts and confirmation statement filings in line with the statutory requirements. Failure to file such documents is a criminal offence under Section 451 of the Companies Act 2006.

How Can The Compulsory Strike Off Can Fail To Work?

Whilst in many instances the notice issued by Companies House will incentivise a director into action to file accounts or a confirmation statement that is outstanding, there are other occasions when the compulsory strike off procedure appears to be potentially counter productive.

If a company director seeks to use the process to trigger the dissolution of a company it can be a mechanism used abusively and inconsistently with perhaps the intention of the legislation. As such this could be grounds for director disqualification.

Compulsory strike off is not intended to be a procedure for a director to do a DIY winding up of a company by deliberately failing to file documents to make use of the process. It is important to remember that failure to file documents required by law such as accounts or a confirmation statement is a criminal offence.

Enforcement Of The Compulsory Strike Off Process

However, enforcement of this offence appears to be arguably light in terms of numbers. In an article in the Sunday Times dated 10 August 2024 “Tommy Robinson Inc ‘made £1.6m’ without paying tax — then folded” which considered amongst other things the striking off of companies by parties connected to Mr Robinson the article made the following assertion about Companies House enforcement:

Companies House has powers to investigate and prosecute individual directors who fail to fulfil their obligations under the Companies Act. The latest figures, relating to the financial year 2021-22, show the agency charged 1,467 individual directors, of whom 761, or 52 per cent, were convicted…Companies House has been criticised for failing to prosecute offenders due to a lack of resources in the past, but post-Covid it has sought to ramp up enforcement. Campaigners still argue the number of prosecutions is inadequate.

Statistics from Companies House “Companies House management information tables 2021 to 2022” show specifically on the matter of failure to file accounts there were in England and Wales, 1,364 prosecutions and the conviction of 730 individuals. However, when you consider those prosecution numbers alongside the 353,987 cases of penalties issued for late filing of accounts issued in the same period for limited companies, you see how potentially light the prosecution numbers might be considered. Indeed there appear to have been over 12,000 companies in 2021-22 who had not filed their limited company accounts within 6 months of the due date.

If a company director does fail to file the accounts (in particular) at Companies House by the due date and the company is subsequently struck off and dissolved then HMRC can be disadvantaged because the regime that dominates our filing of tax returns is one of self-assessment.

Need For Greater Enforcement?

HMRC needs the accounts to work out the corporation tax due to be paid.

This can be a real problem, particularly if no first set of accounts is filed because HMRC will have nothing on file to base an Assessment.

If the company were to be dissolved HMRC would then have to restore the company to the Register and petition for it to be placed into compulsory liquidation to have a liquidator investigate and report.

Reinstatement of a company is potentially somewhat time consuming and can be expensive.

Would it not be better to enforce the obligations of the company’s directors to file accounts by robust enforcement of the criminal offence of a company’s directors to incentivise them to file the accounts instead of what appears to be far greater reliance on the compulsory strike off procedure?

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