Difference Between Compulsory And Voluntary Strike Off
There is no difference in the end result between Compulsory and Voluntary Strike Off of a company. When a company is struck off it no longer exists.
Both a Compulsory Strike Off and a Voluntary Strike Off involves the procedure to remove a company from Companies House. It will typically be deployed when a company is no longer trading and being actively used.
The difference between a Compulsory and a Voluntary Strike Off lies not with the final outcome but in how the company gets struck off. It is initiated by different parties. A Voluntary Strike Off is started by the company whereas a Compulsory Strike Off is triggered by Companies House.
What Is A Company Strike Off?
A company strike off is the procedure to enable a company to cease to exist.
A company exists in law as a separate legal person. As a result, it has its own identity, responsibilities and tax consequences. Whilst a company exists on the register at Companies House, it has to file annual accounts, submit tax returns to HMRC and comply with a whole range of other legal requirements such as those set out in the Companies Act 2006.
When a company is struck off, either through a Compulsory Strike Off or a Voluntary Strike Off, it no longer has those legal duties to comply with. In effect, it has died.
However, if a company is struck off and still has assets, they will pass to the Crown, not the shareholders. Shareholders who wish to avoid losing their right to those assets will need to ensure the Directors deal with them before the company starts on the path to dissolution.
Voluntary Strike Off
A voluntary strike off is a process initiated by the company itself, usually when the company is no longer trading or carrying out any business activities. The application for Voluntary Strike Off is made by the company’s directors or shareholders.
Key Aspects Of Voluntary Strike Off
Decision: The directors or shareholders of the company decide to apply for the strike off voluntarily.
Application: The company submits DS01 application for striking off to Companies House, along with the fee of £8.
Eligibility: The company must meet specific criteria:
Your company must not have changed names, traded, or sold stock or assets in the last three months.
The company must be solvent, and not currently face liquidation.
Your company must not have outstanding creditors with whom it has agreements, such as a Company Voluntary Arrangement (“CVA”).
Timeframe: The strike-off process usually takes at least 3 months to complete, during which any interested parties can raise objections.
Intent: A voluntary strike off demonstrates that the company is willing to be dissolved and removed from the register.
Checklist For Voluntary Strike Off
In order to get your company ready for Voluntary Strike Off it will need to finalise its tax affairs with HMRC. In order to do that it needs to produce a final set of accounts to the point the company ceased trading.
All liabilities need to be settled and relevant parties notified of the intention to strike off the company. Once that is taken care of then the assets can be allocated to the shareholders in accordance with the company’s Articles. Assets that remain in the company when it is struck off will revert to the Crown. This is known as Bona Vacantia.
You need to notify HMRC of the striking off proposed otherwise they may object. You can do this by sending a simple letter but you must include a copy of the cessation accounts and final tax return.
Compulsory Strike Off
A compulsory strike off is a process initiated by Companies House when the company fails to fulfill its statutory obligations.
Key Aspects Of Compulsory Strike Off
Non-compliance: The company in breach of statutory duties has not filed its annual accounts or annual returns within the specified timeframes.
Registrar of Companies Action: Companies House issues a notice to the company, informing them of their non-compliance and the intention to strike off the company from the register. Such a notice will also be provided to the Gazette which in effect invites objecting parties to get in touch with Companies House.
Timeframe: The company is given 3 months to rectify the non-compliance and bring its records up to date otherwise its passage towards dissolution might be incapable of being stopped.
Compulsory Dissolution: If the company fails to take action or respond within 3 months timeframe, the Registrar of Companies may proceed with the compulsory strike off, and the company will be dissolved.
Alternatives To Company Strike Off
Striking off a company can be a useful way to close a small company without solvency issues. However, for larger companies with more complex balance sheets and trading positions it often can be less tax efficient for example. However, if the company is insolvent then it may well not be the best procedure to use.
Members Voluntary Liquidation
If your company is solvent with a strong balance sheet and cash reserves then it is likely a Members Voluntary Liquidation (“MVL”) might be a better procedure to deploy, particularly in view of the tax benefits.
The process of an MVL requires the appointment of a Liquidator who is an Insolvency Practitioner (“IP”). The IP is a regulated professional such as Oliver Elliot’s CEO, Elliot Green, who can undertake an orderly winding up of the company. This involves realising the assets for the best price and net of costs of the Liquidation process distributing the surplus to the shareholders.
Why Can’t A Director Wind Up A Solvent Company Themselves?
Isn’t the MVL procedure like a Voluntary Striking Off but with a Liquidator in control of the company instead of the Directors? The answer is not it is not for two reasons:
- The MVL procedure provides protection for creditors in that if the company turned out to be insolvent then the Liquidator would place the company into Creditors Voluntary Liquidation (see below details of that procedure).
- More importantly however the benefit of using an MVL procedure is the tax benefits that arise which are not available to shareholders that use the Voluntary Strike Off process.
An MVL has notable tax benefits because gains made from disposing of assets are taxed at Capital Gains Tax (“CGT”) rates, rather than Income Tax rates. CGT rates are lower than Income Tax rates. Furthermore, in an MVL there is a significant tax relief available known as Business Asset Disposal Relief (“BADR”), formerly known as Entrepreneurs’ Relief. This relief entitles shareholders to further tax reductions on gains, up to a lifetime limit of £1 million. These tax efficiencies can reduce shareholder tax rates potentially to 10%.
Creditors Voluntary Liquidation
If your company is insolvent and therefore unable to pay its debts when they fall due then the Creditors Voluntary Liquidation (“CVL”) procedure could well be of considerable use to you. It is specifically made available from Chapter IV of the Insolvency Act 1986.
It is a voluntary Liquidation that entitles Directors to appoint an Insolvency Practitioner (“IP”) to place a company into Liquidation and usually with the agreement of creditors this IP is appointed the Liquidator.
As with the MVL procedure, the IP will take over from the Directors in administering the company’s affairs and realise the assets for the best price. However in this instance, after the costs and expenses of the Liquidation have been discharged any surplus is paid over to creditors in accordance with the Statutory Order of Payment. It is uncommon for creditors in a CVL to be paid all of their outstanding debt which will have to be written off if there are insufficient funds available.
The CVL procedure is a key process available to enable Directors to avoid Compulsory Liquidation. It is useful in that it enables a Director in effect jump as opposed to being pushed into Liquidation. It thereby enables a Director to show they have acted responsibly in accordance with their Director duties and in the best interests of creditors.
