Striking off a company is relevant if you are looking to dissolve a company and are the director or secretary of that company.
In this process, you are formally advising Companies House that the company should be struck off the register, the final result of which will be the closure of the company with the UK register of companies updated to show the same.
Four of the most common reasons for striking off a company are:
- Purpose achieved. The company may have been set up for a specific purpose and its aims have been achieved, so the company no longer has a reason to continue.
- Retirement. If the directors wish to retire and there is no plan for the operation to be taken over.
- Reorganisation. The company was a subsidiary and is no longer required, sometimes after the reorganisation of a group of companies.
- Insolvency. Once a company has completed a formal insolvency process such as liquidation, it is eventually struck off the companies register.
Although striking off can be beneficial due to the relative ease and low cost of the process, it is only suitable in particular circumstances. If your company is closing because of a lack of financial stability, striking off may not be the best option for you or your employees. If its insolvent, the company should consider a formal insolvency procedure prior to striking off.
The striking off process is not suitable for companies with outstanding debts, whether that be to creditors, or employees – including directors who are also effectively employees of the company – in the form of for example, redundancy payments, outstanding wages or holiday entitlements.
How striking off a company affects redundancy claims
Due to the lower initial costs, dissolution is often seen as the preferable course of action. In the long-run, however, the process can have major financial and personal disadvantages. One potential drawback is that the process severely hinders the possibility of a director claiming full employment entitlements.
For these reasons, a better option may be to enter CVL (creditors voluntary liquidation).
What happens when liquidating a company?
A company will enter into creditors voluntary liquidation when there are insufficient funds to run the business, i.e. its liabilities are greater than its assets. It is a formal, legal process managed by a licensed Insolvency Practitioner.
How Liquidation affects redundancy claims
When a company enters creditors voluntary liquidation its employees, including any directors, who have been employed for two continuous years or more are eligible for redundancy pay.
Some directors assume that they would not be entitled to redundancy pay, but that is not the case. The average redundancy claim for directors within the UK is approximately £10,000, but this will vary based on factors such as:
- Length of service
- Your age
- Salary amount
The redundancy package can be a lifesaver for those who have gone through the often unfortunate process of closing their business. In some situations, the redundancy payment can be used to help fund the liquidation process itself and ensures financial stability in the short term while a new job is sought.
Striking off vs liquidation
Striking off a company has its advantages but can be the wrong way to go if you have any outstanding debts or wish to claim redundancy pay. Below are two examples of what could happen when following each process:
Striking off the company
- You close the company yourself, submitting the DS01 form for the company to be struck off the register. The fee is £10.
- If the application is accepted, Companies House will provide notice that the company will be struck off in two months’ time.
- The company is formally dissolved once this period is up.
- If there are any outstanding creditors, they may object at any time and petition to restore the company to the register to seek debts.
Liquidating the company
- Appoint a licenced insolvency practitioner to settle the companies affairs and deal with the creditors directly.
- The cost of liquidation will vary according to the company’s particular circumstances, however, it’s possible that the insolvency practice may be willing to accept all or part payment for the costs of liquidation from any redundancy entitlements successfully claimed from the National Insurance Fund. We can put you directly in touch with a company we work in partnership with.
- If you choose to work with Redundancy Assist, we will assess your outstanding employment entitlements and manage your claim to the National Insurance Fund on your behalf. We will ensure you receive all payments due to you in a timely manner.
- It takes approximately 2 weeks to get the company into liquidation, and from there we apply and receive payment from the National Insurance Fund. We charge 15% of the net amount received from the National Insurance Fund.
- Once settled, the company is then closed in the correct legal manner.