Compulsory Strike Offs: A Warning to Directors

In short:

Some companies and accountants offer company closures that aren’t correctly carried out.
A mismanaged company closure can have severe consequences and even see directors become personally liable for business debts.
Compulsory strike offs occur when HMRC accounts aren’t filed.

Unfortunately, we often come across clients that have found themselves in trouble because of unscrupulous ‘professionals’ they’ve hired to close their businesses for them.

If a business isn’t closed correctly, it can really come back to haunt directors. Compulsory strike offs, in particular, are not something to be meddled with casually.

We asked business closure expert and Senior Client Manager, Ben Westoby to recount a recent case that should serve as a warning to directors tempted by cheap ‘quicky’ closures.

Unforeseen problems with the strike off process

We recently received instruction from a company director whose catering business had run into some financial difficulties. After looking at all the options available, they decided that the only feasible option was to close the company.

The business had a handful of outstanding creditors, very few assets, and was insolvent.

“The debts weren’t particularly big (especially in the world of business closure) but despite this, it quickly became apparent that the business had no way at all in which to pay for them, or indeed, the fee of a standard liquidation” explains Westoby.

“As such, we were able to organise a simple dissolution of the company. It removes the business from the Register of Companies but costs much less than a liquidation.

“All was well until a few weeks into the case, when the director informed us that he was being chased by an HMRC-appointed bailiff that had been sent to his home address.

“This was unexpected. As part of our standard processes, we’d already changed the registered office address to our own, so we couldn’t understand why he’d had a bailiff turn up at his front door. On top of this, the amount being collected was much more than that on 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. Or at least, thought he had closed.

“It turned out that he’d paid his accountant to strike off his previous company, but the process hadn’t been carried out correctly. As a result, HMRC were still trying to recover money owed to them.”

What is a compulsory strike off?

We often hear of directors intending to have their accountants ‘strike off’ their companies as if it were simply a case of unticking a box on a website.

Unfortunately, this isn’t the case. The dissolution of a company, especially those which have outstanding debt, needs to conform strictly to the Companies Act 2006. This includes informing all associated members and stakeholders of the intended closure.

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

This strike off request is eventually 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.

What happened to our client?

Westoby recounts that “after some investigation, it transpired that the accountant tasked with closing off our client’s previous company had simply left it alone in the hope that Companies House would eventually start a compulsory strike off for failure to file the annual return.

“Was the director unlucky in this instance? Perhaps, but the reality is that failing to close a company correctly can come back to bite you.

“Even if a company is eventually struck off, HMRC (or any creditor for that matter) has the ability to re-instate the company afterwards and force formal liquidation proceedings. This can result in a lengthy investigation into the running of the company.

“Any wrongdoing discovered could result in the director being disqualified, and in certain cases, the director becoming personally liable for the debt.

“Of course, it would be inflammatory and incorrect to suggest that all accountants would undertake a business closure in this way, but unfortunately some do, and we’ve encountered several cases in which similarly haphazard closures have caused major problems down the line for directors.”

Compulsory strike-off consequences

There are several potential problems that can arise as a result of a mismanaged compulsory strike off.

Potential consequences include:

Any assets that are in the company, such as cash, stock, or buildings becoming property of the Crown.
Directors being disqualified from being a director for 15 years.
Any debts the company holds becoming the liability of the directors.
In turn, this can make it difficult to get credit in the future, as banks may not be as willing to lend to you.
Contracts with suppliers and customers are generally cancelled as part of the process, meaning that it could be difficult to secure them again in the future.

It’s also worth remembering that compulsory strike offs can even be forced upon companies that are still trading.

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

Need some advice on closing your company?

The main thing to take away from this case 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 provide you with a clean and fully compliant closure that ensures that there’s no chance of any nasty surprises for you in the future.

Call us today on 0808 280 6031 for some free, no-obligation advice or get a free consultation.