Limited companies that have no debt can apply to have to strike off the company, or by using a formal insolvency process known as a liquidation. Voluntary strike-off, also known as dissolution, places the responsibility for closing down the company firmly with yourself and other directors.
While the process is less costly than voluntary liquidation, there can be serious ramifications if you try to dissolute your company and don’t meet the stringent requirements. Striking off a company is a cheaper and simpler process, but it does have some disadvantages.
Difference between liquidation and strike off
The terms liquidation and strike off are often used interchangeably, but there is a key difference between the two. Liquidation generally refers to the process of selling off assets in order to pay creditors, while strike off involves permanently closing down a business. In some cases, businesses may choose to pursue both options in order to fully dissolve the company.
Liquidation can be either voluntary or involuntary. Involuntary liquidation occurs when a company is unable to pay its debts and creditors petition for the company to be liquidated. Voluntary liquidation, on the other hand, is when the directors of a company decide to proactively liquidate the business. This is often done in order to minimise losses or avoid insolvency.
The voluntary strike off process on the other hand, is only available to companies that are no longer trading. Once a company has been struck off, it no longer exists and cannot be revived. This option is often chosen by businesses that have simply run their course and are no longer viable. The process of strike off is usually much simpler and quicker than liquidation.
In general,liquidation is recommended for businesses that are insolvent or struggling to pay their debts, while strike off may be a better option for businesses that are no longer trading and have no further use for their assets.
Do the disadvantages of strike off outweigh the benefits?
Striking off is when the company is removed from the Companies House register, and it ceases to exist. This can be done by the directors themselves or through a liquidator. Voluntary strike off can be an attractive option because it’s relatively inexpensive and can be done quickly. However, there are some significant disadvantages that need to be considered before making this decision.
Cons of voluntary strike off
- Any creditor can oppose a strike off – If the company has outstanding tax debts HMRC will quickly oppose such a move, they will then apply for the business to enter compulsory liquidation.
- Creditors can apply to have the striking off suspended, leaving the open to further legal action from creditors.
- Before you apply to strike the company off, all creditors are required to be informed, failed to do so will allow creditor subsequently makes a claim by reinstating the company to the register for up to 20 years.
- If the company is insolvent, directors can face serious repercussions including personal liability and disqualification for up to 15 years.
Insolvent liquidation
Insolvent liquidation is a process whereby a company’s assets are sold off in order to repay its creditors. This type of liquidation is typically initiated by the company’s directors, who are looking to minimise their own liability in the event of the company’s insolvency. Creditors’ Voluntary Liquidation (CVL) is one form of insolvent liquidation that offers benefits to both the directors and the creditors.
Under a CVL, the directors may be eligible for statutory redundancy pay, which can be used to help cover the costs of the liquidation process or to repay some of the company’s debts. The creditors, meanwhile, will receive a higher return on their investment than they would under a traditional liquidation.
Strike off or liquidation?
When you’re trying to decide whether to strike off or liquidate your company, you need to consider what would happen to existing debts. If you can’t repay them and try to strike off the company, the application would be challenged. Furthermore, if a creditor files a claim for a debt in the future, the company will be reinstated.
On the other hand, if you liquidate the company, any unpaid debts that remain are officially written off. So there’s no chance of being held personally liable for them in the future. The business is closed down in an orderly manner when you opt for solvent or insolvent liquidation, and you gain the support of a licensed professional.
In the end, it’s up to you to decide which option is best for your company. But you should make sure you understand all the implications of each before making a decision.
If you are still unsure which route to take either strike off or liquidation for company closure, complete he online enquiry or contact us on the above number.
Read more: Reversing a liquidation
With over three decades of experience in the business and turnaround sector, Steve Jones is one of the founders of Business Insolvency Helpline. With specialist knowledge of Insolvency, Liquidations, Administration, Pre-packs, CVA, MVL, Restructuring Advice and Company investment.