The simple answer is YES, subject to a number of rules and qualifications.
In order to bring about a cessation of the company’s legal identity, the protocol as clearly set out on the Companies House website needs to followed. Any director who does do not follow the rules regarding who must be informed of the intention to have the company struck off the Register can face a fine and possible prosecution and imprisonment.
Directors can only strike off the company if it:
- has not traded or sold off any stock in the last 3 months
- has not changed names in the last 3 months
- is not threatened with liquidation
- has no agreements with creditors, for example a Company Voluntary Arrangement (CVA)
If the company does not meet these conditions, the Directors will have to voluntarily liquidate the company instead.
So, before applying to Companies House to strike off the company, the Directors must close it down legally. This involves:
- advising interested parties and HM Revenue and Customs (HMRC)
- making sure the company’s employees are treated according to the rules regarding redundancy
- dealing with the business assets and accounts
Parties that must be told
The application form [form DS01 in the case of a limited company and form LL DS01 in the case of an LLP] must be filed at Companies House [fee £10] and a copy of the application must, within 7 days of filing, be sent to anyone who could be affected, including
- shareholders
- creditors
- employees
- managers or trustees of any employee pension fund
- any directors who did not sign the application form
The DS01 must be signed by the sole director if only 1, by both if there are 2, or by the majority if there are more than 2.
Employees
All liabilities due to employees, including redundancy entitlements, must be paid and HMRC must be advised that all staff have been dismissed and the PAYE scheme must be closed down.
If the company cannot pay employees, then, in order for the employees to be able to submit claims to the Government’s Redundancy Fund, the company will have to be placed into a formal insolvency procedure such as liquidation or administration.
Submission of Final Accounts
The final statutory accounts and the final Company Tax Return, made up to the date that the company ceased to trade, must be sent to HMRC.
All outstanding tax liabilities must be paid. If these are not paid, HMRC will simply object to the strike off and the directors will have to go down the formal liquidation route.
Assets
All remaining business assets should be shared among the shareholders before the company is struck off.
Any assets left over will go to the Crown. This would include any payments the company may receive in future, e.g. tax refunds
Books and Records
Directors must keep business documents for 7 years after the company is struck off, for example bank statements, invoices and receipts.
If the company had employees, the directors must keep copies of the company’s employers’ liability insurance policy and schedule for 40 years from the date the company was struck off.
Pitfalls
There is absolutely no point in going down the strike off route if directors know that creditors are going to object- Companies House will simply freeze the application on receipt of objections. As a matter of course, it would appear that HMRC will object if there are tax liabilities outstanding and Banks will object where Covid related loans remain unpaid.
In addition, directors need to be aware that The Insolvency Service has been granted new powers to tackle unfit directors who dissolve companies to avoid paying company liabilities.
The Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Act received Royal Assent on 15 December 2021 and is aimed specifically at directors dissolving companies in order to avoid repaying Government backed loans put in place to support businesses during the Coronavirus pandemic. This recent legislation extends The Insolvency Service’s powers to investigate and disqualify company directors who abuse the company dissolution process.
This Act extends The Insolvency Services investigatory powers to directors of dissolved companies and if misconduct is found, directors can face sanctions including disqualification as a company director for up to 15 years or, in the most serious of cases, prosecution.
The Insolvency Service will also be able to apply to the court for an order to require a former director of a dissolved company, who has been disqualified, to pay compensation to creditors who have lost out due to their fraudulent behaviour. Be warned, such cases have already come to court.
In conclusion
The £10 strike off procedure is really aimed at companies with little or no assets and minimal or no creditors. A cheap and efficient way of dealing with those hundreds of companies that do not require a formal insolvency process.
The Government is particularly live to the possible misuse of the dissolution process and has quickly introduced legislation specifically aimed at directors seeking to avoid formal insolvency procedures which examine their conduct in the lead up to the company going out of business.
Early professional advice should be sought from a Licensed Insolvency Practitioner to ensure the correct way to close down a limited company is taken.
