Active Proposal To Strike Off: What Happens If The Action Is Suspended?
This guide explores what ‘active proposal to strike off’ means and what can happen next if this action is suspended, either by the business in question or another party such as a creditor.
‘Striking off’ refers to the removal of a limited company from the UK’s official register of businesses, maintained by Companies House, so that it ceases to exist. Companies face striking off for various reasons.
Directors initiate voluntary striking off when they:
- Retire and wish to dissolve the business
- Own a dormant company they no longer need
- See no viable future for the company
- Want to pursue a new business venture
Companies House forces striking off when:
- The company fails to file its accounts
- No director remains in place
In the case of compulsory striking off, Companies House publishes a notice in the Gazette, declaring their intention to strike off the company unless given reason not to.
This is called the first Gazette notice for compulsory strike off. Learn more about the compulsory strike off process in our full guide.
Compulsory striking off carries significant consequences:
- The company ceases to exist as a legal entity
- The Crown acquires ownership of any undistributed assets or cash
- Contracts with suppliers and customers face jeopardy
- The company loses its ability to secure finance for rescue
- Directors’ conduct may undergo investigation
- Directors lose limited liability protection if trading continues, potentially facing personal liability for company debts
Ultimately, striking off means the company no longer exists and cannot trade or operate.
Active proposal to strike off meaning
By extension, an active proposal to strike off is either a voluntary or involuntary process.
Voluntary strike offs
In voluntary striking off, company directors petition shareholders to close the limited company.
Shareholders vote on the proposal, and if approved, a four-week notification period begins. After this period, assuming no objections, the striking-off proceeds.
The company director must submit a DS01 form to Companies House within two months and inform creditors and interested parties of the dissolution decision. Read our DS01 form guide.
For successful striking off, the company must not have traded, sold stock, or changed names in the last three months. It must also have no payment agreements in place and not face insolvency proceedings or liquidation.
Companies must deal with assets and liabilities before striking off.
Solvent companies with assets over £25,000 can use Members’ Voluntary Liquidation (MVL), a tax-efficient method to close the company and handle its assets correctly.
Strike offs for insolvent companies
However, there are different paths for insolvent companies that cannot pay their debts when they fall due, if a Company Voluntary Arrangement (CVA) is not viable:
Directors initiate a Creditors’ Voluntary Liquidation (CVL) process to close an insolvent company without a viable future. A licensed insolvency practitioner handles the debts and assets correctly, fulfilling duties to creditors and the company faces striking off once debts receive proper treatment.
Creditors may try to force compulsory liquidation when owed over £750 and repayment demands remain unfulfilled for 21 days. Creditors issue a winding-up petition to the courts, which may approve a winding-up order – the dissolution proceeds if no objections arise, such as from creditors the company owes money.
We have also written recently about proof of debt and owing creditors money after company liquidation.
Explained: Voluntary striking off action suspended
After deciding to strike off your limited company and submitting a DS01 form to Companies House, you might discover that your voluntary strike-off action faces a block or suspension.
This situation may arise if your company has unpaid debts and creditors risk losing money if your company disappears from the register.
Creditors objecting to the strike off may include suppliers seeking payment for invoices or HMRC attempting to collect unpaid taxes.
UK law grants companies a two-month window from the date of your strike off application’s advertisement to lodge their objections. And should Companies House uphold a creditor’s objection, they will suspend your strike off application.
As a result, your company maintains its active status on the register.
In this scenario, there are three main options:
- Resubmit the application: You can resubmit the DS01 form, hoping the creditor won’t object again. However, the creditor likely monitors your actions and may object once more. Remember, even after striking off, creditors can restore your company to the register with a valid reason.
- Clear the debt: For small outstanding debts, you might pay off the creditor and resubmit the application. However, this option depends on your ability to clear the debt. Exercise caution if your company owes multiple creditors. Paying only the objecting creditor could be viewed as a preference payment and potentially as wrongful trading.
- Enter formal liquidation: You can consider a CVL. Any remaining debts get written off, unless personally guaranteed.
There are a few reasons why someone may discontinue compulsory strike-off action:
If compulsory strike-off action has been discontinued
It could be the result of the company directors having resolved the issue highlighted by Companies House so that they can save the business and carry on trading.
However, sometimes the compulsory strike-off action has been suspended by one or more of the company’s creditors.
Creditors often oppose compulsory strike-offs when your company remains in debt to them. They cannot pursue a non-existent company for repayment, which motivates their objection.
Such objections may lead to serious legal and financial repercussions. The creditor might issue a winding up petition to force your business into liquidation, eager to recover their debts.
Unlike a strike-off, which merely closes the business, liquidation involves selling company assets to settle outstanding liabilities.
Compulsory liquidation can trigger an investigation into the director’s professional conduct. The investigator aims to ensure you’ve fulfilled your duties to creditors and safeguarded their interests to the best of your ability.
But allowing your company to undergo a strike-off to evade creditor payments can result in misfeasance charges, which carry several potential penalties. Find out more about the consequences, including director disqualification, in our other guides.
Here at Hudson Weir, our team of highly qualified insolvency practitioners and chartered accountants has extensive hands-on business experience.
We understand the pressures companies face around the strike off process and can help find resolutions – for further information or assistance, please contact us.
