What Is a Compulsory Strike Off?

Compulsory strike-off is where Companies House forcibly strikes a company off the register, ceasing its existence as a legal trading entity.

The process might seem appealing to those who are already looking to close their company, as it removes their need to be involved, instead allowing a third party to handle the proceedings. For others, who wish to continue trading, it may appear a frightening concept.

In both cases, there are a variety of legal and financial risks that should be considered. In this guide, we’ll be covering the grounds for compulsory strike-off, the potential consequences, and what you can do about it.

What Are the Grounds for Compulsory Strike Off?

There are a number of potential grounds for compulsory strike-offs. Mostly, it’s a result of non-compliance with Companies House regulatory requirements. Reasons for compulsory strike-off include:

Failing to file your annual confirmation statement (form CS01)
Failing to file company accounts on time
Not updating changes to your registered office address
Failing to appoint a company director
Failing to correspond with Companies House
Not actively trading as a business

If the correct action isn’t taken to remedy these issues, the strike-off process will begin.

What Is the Compulsory Strike Off Process?

1. Letters of Warning

Companies House must give due notice to all businesses of their intentions to remove them from the register. The Companies Registrar will do this by sending two letters of warning to the company in question, each specifying the reason for the potential strike-off.

2. First Gazette Notice for Company Strike Off

If no remedial action is taken and no response is given to its letters, Companies House will publish a notice of the impending company strike-off in The Gazette, the UK’s official public record.

This notice is posted as an advertisement to any potentially interested parties so that they might object to the company being struck off. For example, company directors and shareholders can use this opportunity to intervene and begin making efforts to keep the business on the register.

Creditors to the company may also use this notice as an opportunity to object. If the company ceases to exist as a legal entity, it will be much harder for them to get their money back.

If you’re worried about missing a notice about a company, you can subscribe to The Gazette’s notification service. This will allow you to keep track of any notices posted in relation to that business.

3. The Company Is Struck Off

If, after 2 months, no action has been taken in regard to the Gazette notice, Companies House will strike the business off their records, formally ending its status as a legal trading entity. The company will no longer exist.

From start to finish, the compulsory strike-off process takes around four months. There’ll be a month to react to each warning letter, and 2 to react to the published notice, although it may take longer.

What Are the Risks of Compulsory Strike Off?

For many directors, a compulsory strike off actually appears to be an attractive prospect. Some wish to have their company closed anyway, so having a third party put in the legwork can be seen as a way to save effort. Others are at the helm of insolvent companies and perceive compulsory strike off as a potential way to escape their debts. However, compulsory strike off has some serious risks to bear in mind.

Your Assets Can Be Assumed by the Crown

Being struck off the register doesn’t simply mean your company no longer exists legally. Any company assets that are still registered with the company at this time – be it cash, equipment, or property – will be treated as ‘bona vacantia’. This translates to ‘vacant goods’. As a result, all company property will be assumed by the Crown at the point of dissolution.

If you’re not careful, you could lose your hard-earned assets. All assets must be moved out of the company prior to dissolution in order to avoid this.

It should be noted that if you’re the director of an insolvent company, moving assets out of the company is not a good idea – it can have criminal consequences.

You Could Face Legal Charges

In cases where the company has debts, it can be tempting to allow the compulsory strike-off to happen; after all, if your company no longer exists as a legal entity, your creditors no longer have a body to pursue for their money.

However, allowing an insolvent company to undergo a compulsory strike off is not a good idea. Even if your creditors don’t manage to object and the strike-off is successful, they will still be able to apply to have your company restored via court order. This will allow them to force your company into compulsory liquidation.

Compulsory liquidation will open an investigation into your conduct as a director. As director of an insolvent company, you must act in the interest of your creditors – allowing your company to undergo compulsory strike off will contravene this duty. It will be seen as either gross negligence, or worse, deliberate evasiveness.

This will leave you open to accusations of misfeasance, wrongful trading, and potentially even fraudulent trading. As a result, you could be made personally liable for company debts, be forced to pay large fines, be disqualified as a director, or even be imprisoned. To avoid this, you’re much better off pursuing an insolvency procedure such as a CVL.

Loss of Limited Liability

Some individuals continue trading simply not knowing that their company has been struck off as their warning letters were sent to an outdated office address. If your company is struck off and you continue to trade as normal, you could face severe consequences.

You will no longer be trading as a limited company, so you won’t have the protection of limited liability. This means that you will be personally liable for any debts incurred during this period. You will also be personally subject to any legal challenges that arise.

This could result in large fines, disqualification from directorship, or imprisonment.

How Can I Stop a Compulsory Strike-Off?

Stopping a compulsory strike off is fairly straightforward. Your letters of warning will detail exactly why your business may be struck off the register. There are a few potential responses you may need to take.

File Your Company Accounts and Returns

Ensure you are complying with Companies House filing regulations. This is the primary reason for company strike-off taking place. You must file your accounts within 9 months of the end of the financial year – otherwise, you may find yourself in receipt of a letter of warning.

Avoid Inactivity

If your company is perceived to be inactive and no longer trading, this can be grounds for company strike-off. You can either A) trade, or B) register the company as dormant with Companies House. This will allow you to keep the company registered whilst it is inactive.

Update Your Registered Office Address

Your current registered office address should always be kept up to date. This helps to ensure that you don’t miss any important communications from the likes of Companies House and HMRC.

Respond to Registrar of Companies

Failure to respond to these messages will result in a company strike-off. One of the easiest ways to avoid strike-offs is to maintain correspondence with the Registrar of Companies. Their communications will include details of the strike-off and what actions you need to take.

Letter of Discontinuation

If you satisfy the demands made in the letters of warning, your compulsory strike off will be discontinued. The letter of discontinuation serves as confirmation that the process has been stopped. Once in receipt of this letter, you can continue to trade as normal.

Can I Reverse a Compulsory Strike Off?

If your company has already been struck off, you can apply to have it restored. This is necessary if you wish to carry on trading or if you wish to recover company assets that have been assumed by the crown. The process is known as administrative restoration.

To carry out this administrative restoration, you’ll need to complete an RT01 form. The form costs £100 to complete. There are several criteria that must be met to apply for administrative restoration:

You must have been a company director/shareholder
The company must have been dissolved in the last 6 years
It must have been trading at the time of dissolution

If your company had assets you wish to recover, you’ll need to get a “Bona Vacantia” (WA1) waiver letter. This letter serves as confirmation that your previous company assets can be returned. It will cost £64 to obtain.

Finally, you’ll have to file any non-submitted documents to Companies House. These could be annual accounts or confirmation statements. The filing fee will be £40.

Get Free Advice Today

If your business has been served a letter of warning, it’s normally fairly straightforward to keep it on the register.

However, if you do want to close your business, the various options can be confusing and overwhelming. Our expert insolvency practitioners can help to guide you to the right choice. You may find a CVL or an MVL is the right choice for you.

Alternatively, if your business is struggling but you want to keep it afloat, there may be a chance for a turnaround. Administration or a CVA could help to return it to a point of solvency.