A guide to strike offs and solvent liquidations

The basics

A voluntary strike off is when the directors/shareholders apply to Companies House for the company to be struck off and dissolved.

A solvent liquidation (otherwise known as Members’ Voluntary Liquidation) is a formal liquidation procedure. Directors/shareholders appoint a licensed insolvency practitioner as liquidator, who will then shut down the company.

Entry requirements

To strike off a company, the company must not:

• Be insolvent;
• Have any outstanding debts;
• Have changed names in the preceding three months;
• Have traded or sold any assets in the preceding three months;
• Have any existing insolvency procedures in place (such as a company voluntary arrangement) or threats of legal action against the company.

To place a company into solvent liquidation, a company must simply be able to pay its debts in full within 12 months and have at least 75% of members agree with the decision to liquidate.

Process

The basic process for striking off a company is as follows:

• Directors/shareholders complete an online form applying to strike off the company.
• At the same time, notice of strike off is displayed by Companies House and the Gazette. The notice is also served on all interested
• parties, including creditors, employees, shareholders, and trustees or managers of the company’s pension fund.
• If no objections are received within two months, the company is dissolved.

The basic process for a solvent liquidation is as follows:

• Shareholders pass a resolution to place the company into solvent liquidation and appoint a liquidator.
• Directors swear a declaration of solvency, which states that the company can pay its debts in full, plus statutory interest (8% p/a), within the proceeding 12 months.
• The liquidator serves notice on all creditors of the liquidation and provides a deadline by which they must submit their claims.
• If any claims are received within the deadline, they will be adjudicated, and the dividend will be paid.
• Any balance will be distributed to the shareholders.
• A final report is issued to shareholders and filed at Companies House.
• If no objections are received within three months, the company is dissolved.

Advantages

With the strike off route:

• A lower up-front cost is usually found.
• A simpler process.
• Tax effective if the distribution to shareholders is less than £25,000.

With the solvent liquidation route:

• The directors have greater reassurance, as the liquidator takes the responsibility from them and ensures all legal obligations are being met.
• If the right conditions are met, shareholders can take advantage of the Business Asset Disposal Relief provisions, paying tax of 10% on qualifying assets. This makes solvent liquidation a particularly attractive option for companies with a large amount of assets, as the benefit of utilising these provisions outweighs the cost of the liquidation.
• The liquidator will deal with any remaining assets/liabilities.
• Creditors who have not claimed by the deadline provided by the liquidator are not entitled to disturb any distributions made by the liquidator

Disadvantages

With the strike off route:

• The shareholders face higher exposure to personal liability. If an unknown creditor is discovered and restores the company, shareholders will have to repay their distribution to the restored company, which will be used to pay the creditor.
• It is only possible if no insolvency procedures or threats of legal action exist or are pending against the company.
• If assets to be distributed to the shareholders exceed £25,000, the whole amount will be treated as income and potentially trigger a significant tax liability.
• Any assets left within the company after the date of dissolution will by law pass to the Crown (‘Bona Vacantia’).

With the solvent liquidation route:

• There is typically a greater up-front cost.
• Directors could be held personally responsible should it emerge that the company liabilities cannot be covered by its assets.
• There is typically a longer process before the company is finally dissolved.

How we can help

If you have any questions regarding strike offs, solvent liquidations, or any other restructuring and insolvency process, please get in touch with the experienced team at Moore Kingston Smith Licensed Insolvency Practitioners. Our team can offer practical, down-to-earth advice to help ensure reasoned solutions for your business.