Overview
Striking off procedure
'Striking off' is not the same as 'winding up'. Winding up refers to liquidation, a process conducted by a liquidator to wind up a solvent or insolvent company.
- Striking off may be done by the Registrar of Companies under section 1000 of the 2006 Companies Act, or
- Under s.1003 a company may apply for striking off.
How to strike off a company
Download form DS01 from the Companies House website. The directors should meet and make a board minute to confirm that:
- The company is solvent and has paid or will pay all its outstanding debts or obligations.
- It will remain solvent for the foreseeable future.
- This amounts to a declaration of solvency, but a formal solvency statement is not required to be filed with Companies House.
The form is then completed and its declaration signed and sent off. If all is in order, the registrar will put a notice in the London, Edinburgh or Belfast Gazette to advertise that it has the power to strike off a company and inviting any interested party to show cause as to why this should not be done. If no response is made the company is struck off two months later.
If the company is insolvent or becomes insolvent, its directors can be held personally accountable to its creditors. Once struck off, a company can be reinstated to the Register in some circumstances. It is rare for this to happen because it is expensive to do.
The Registrar will not strike off a company that has outstanding debts or obligations to HMRC.
If the company has non-distributable capital reserves it will need to perform a Capital reduction in order to distribute them before strike off. Otherwise, they will become ownerless goods or Bona Vacantia which means that ownership passes to the Crown.
The treasury will not, by concession, claim share capital under Bona Vacantia. This may be distributed on striking off even though this is illegal under the Companies Act.
- From March 2012, the maximum amount of a company's assets that can be distributed as capital on striking off is capped at £25,000. See Distributions & striking off for further detail.
Top-tip: if the company has complications that mean there is uncertainty surrounding its solvency, the directors should not sign form DS01. They will need to appoint a liquidator to wind up the company instead, see Practical Tax Guide: Insolvency FAQs for directors.
Anti-avoidance measures
HMRC has the power to counteract tax advantages connected with Transactions in Securities (TiS).
- From 6 April 2016, a distribution in respect of securities on a winding-up specifically falls under the TiS regime.
- An 'anti-phoenixing' Targeted Anti-avoidance Rule (TAAR) also applies when an individual winds up a close company and operates a similar business within two years.
The expanded definition of a TiS and the TAAR should not extend to a distribution on striking off. The £25,000 limit mentioned above applies instead of the TAAR. The expanded definition of a TiS is not wholly inclusive and the rules could potentially apply to a striking off if there is an Income Tax avoidance motive.
Restoration of a company struck off under s.1003 Companies Act 2006/ s.652/652A Companies Act 1985
A company that has been struck off can be restored to the Register. The process depends on the manner in which it was struck off.
If the company was struck off by the registrar, the process is dealt with by post and is reasonably simple. Where a company was voluntarily struck off, court action is required to reinstate it. As a result, a long-winded and expensive process is required.
See When can a company be reinstated?
What if the amounts available for distribution are more than £25,000?
Without the option of the capital distribution route, any distributions paid on dissolution will be treated as income and taxed accordingly. If the company has assets in excess of £25,000 and its shareholders wish for capital treatment, they have two choices:
- The company may consider paying a dividend to shareholders of cash or in specie to reduce assets to £25,000 and then distribute the £25,000 as capital, following s.1030A.
- Care must be taken as if the company does not have a policy or history of paying dividends as HMRC may seek to include any amounts paid as dividends before striking off is applied for within the amounts distributed once the striking off process has begun if they believe dividends are only being paid in anticipation of the dissolution to meet the £25,000 limit. There is no time limit within which this may apply but regular dividends paid whilst the company is still trading should not be caught.
- Alternatively, the company may appoint a liquidator, this will come at the cost of the extra fees involved, but this will secure capital treatment of all distributions made during the course of liquidation. Care should be taken that the Transactions in Securities rules or TAAR will not apply to deny capital treatment.
