Compulsory Strike Off Consequences – a Warning to Company Directors

Don’t let your company fall into compulsory strike off. It can have dire consequences as one of our clients found out the hard way when bailiffs came knocking on his door.

Not all is as it seems with the strike off process

We recently received instruction from a company director whose catering business had run into difficulty and unfortunately had no other option but to close.

The company had outstanding creditors, very few assets, and was insolvent.

Because it could not afford to appoint a liquidator (at the quoted cost of £5000.00), we started the informal process of dissolving (aka striking off) the company.

About 4 weeks into the case, the director contacted us to say that he was being chased by an HMRC-appointed bailiff that had been sent to his home address.

This was odd. We had changed the registered office to our own address as normal, and the amount that was being collected did not tally with our case records.

After some head scratching, the director realised that the debt was actually from a different limited company that he had closed some time ago.

Well, in actual fact, he thought he had paid his accountant to ‘strike it off’.

However, it turns out the strike off process hadn’t been carried out correctly, and as a consequence HMRC were trying to recover the debt it owed.

What is compulsory strike off?

We often hear that directors are going to get their accountant to ‘strike off’ their company, like it is some sort of button you can press on a website.

In fact, it isn’t. The striking off of a company, especially those which have outstanding debt, needs to conform strictly to the Companies Act 2006. This includes informing all associated members of the intended closure.

A compulsory strike off occurs when Companies House hasn’t received any accounts or confirmation statements from the company directors (or their accountants).

The strike off request will be published in the Gazette. At which point there is a two-month period where anyone can object to the application, otherwise the company will be struck off the register.

So what happened to our client?

Looking back through the filing history, the accountant had just jettisoned the company and waited for Companies House to start a compulsory strike off for failure to file the annual return.

Was the director unlucky in this instance? Maybe. Maybe not. The reality is that failing to close a company correctly can come back to bite you.

In this situation (compulsory strike off), HMRC (or any creditor) has the ability to re-instate the company and force formal liquidation proceedings. This can result in a lengthy investigation into the running of the company.

Any wrongdoing could result in the director being disqualified, and in certain cases, the liability of the debt falling onto the director personally.

It would be inflammatory and incorrect to suggest that all accountants would undertake a business closure in this way, but unfortunately some do.

It’s worrying to hear and could be detrimental to you both as a director and as an individual.

Compulsory strike-off consequences

The situation above goes to show that a compulsory strike off can have serious consequences for a company and its directors.

It’s worth knowing that a compulsory strike off can happen to a company even if it is still trading!

If directors, or their accountants, don’t file accounts or reply to any communications from Companies House, then the company will be struck off the companies register and cease to exist.

The consequences of this type of action include:

• Any assets that are in the company, such as cash, stock, or buildings will become property of the Crown
• Directors could be disqualified and become unable to become a director for 15 years in the future, as they have failed to act in the right and proper way
• Any debts the company holds could become the liability of the directors, as they have failed to close the company in the correct and lawful manner
• It could be very difficult to get credit in the future, as banks may not be as willing to lend to you
• Contracts with future suppliers and customers could be at risk – any contract that is between a company and its suppliers or customers will probably cease when the company is struck off

Need some advice on striking off your company?

The main thing to take away from this story is that you should never just let a company fall into a compulsory strike off.

Luckily for the director we were able to resolve the situation with his other company as well as the one we were originally instructed for.

If you need to strike off your limited company we can help you make sure it is done the right way with no effect on you.

Call us today on 0800 975 0380 for some free, no-obligation advice or get a free consultation.