So, your vision was set, the plans were afoot, and nothing could get in the way of creating your EMPIRE. Motivation came, with all the ups and downs, clients coming and going, and marketing strategies changing, yet for all your determination, patience and resilience the universe had other plans. Now, striking off an SME might be on your horizon.

It is extremely hard to maintain and grow a business in an era where communication channels are so ripe and competition fierce, not to mention the impact of economic, commercial, or business considerations on the bottom line. What about the emotional drain of trying to keep optimistic against the backdrop of adversity? 

But what can be harder is knowing when to let go and start afresh. I mean, this is YOUR baby, YOUR creation, YOUR life. And it is hard to admit defeat and throw in the towel. 

Please remember, this is still only a part of your life and we at Farringford Legal can make the decision of striking off an SME and the journey to that switch a little less stressful and give you a sense of optimistic purpose for your next adventure.

What are your options?

Turning to YOUR baby, the company you worked so hard to create. Time to close it out, wind it up and move on. There are a number of considerations to have in mind when you reach this stage. You can consider various insolvency options for the company, but I would just like to touch on another option: the STRIKE-OFF option. This is where a company makes an application to Companies House to strike it off the Company Register and become dissolved. This is by no means an exhaustive list of considerations but will give you a flavour of what you may need to think about when considering this option.

Firstly, the strike-off process is governed by Part 31 of the Companies Act 2006, which sets out the circumstances and the procedure to be followed (failure of which is considered a serious offence punishable by an unlimited fine and/or potential imprisonment). It is not for every company and the directors and company secretary will need to consider whether it is the correct approach to take. As mentioned above, the alternatives could include formal liquidation which has its advantages and disadvantages. For example, known liabilities are dealt with during a liquidation. In contrast, in a strike-off process, creditors can apply to restore the company to the register if they have or wish to commence an action against the company for recovery of sums owed. However, the liquidation route can be a costly process, whereas the strike-off process is relatively cheap.

The key to the process is planning. 

Some of the main considerations when striking off an SME include:

  1. A company needs to have not traded for at least three months before an application can be made and broadly not engaged in any activity or disposed of property or rights for the purposes of trading during that time.
  2. Ensuring that any activity taking place from the point of non-trading is activity to close down the company’s affairs. 
  3. Consider the assets and the liabilities of the company. Are there any outstanding contracts that need to be completed? Does the company owe any money to third parties, or indeed does anyone owe the company any money? What about leasing arrangements on vehicles, subscription agreements for software licences, websites, domain names, etc? Can any contracts be assigned, novated, or terminated? It would be important to get to grips with an inventory of your assets and liabilities before considering whether the strike-off process is right for the company and possibly close down these arrangements one by one in a timely manner.
  4. If you have any customers or third-party liabilities, consider whether they are satisfied, and whether any guarantees/warranty periods have ended. It is important to minimise the risk of potential claims when the application is made because any creditor will need to be notified before and after the strike-off application is made, which could alert them to object to the application and restore the company to the register.
  5. You will also need to consider any tax implications. This means having early discussions with your accountants and tax advisors (since they will need to prepare final accounts for the company) and most importantly, discussions with HMRC for any employment, business or VAT tax issues that may need to be resolved and accounts settled.
  6. Another issue that does come up is the question of directors’ loans. Usually, a company going down this route has had cash injections from its directors to keep the company afloat. This can be quite sizeable, and the issue here becomes whether the company has sufficient funds to pay these or whether will they need to be written off. This will be a discussion for your accountants and tax advisors but inevitably will involve some legal paperwork to make sure it is done properly.
  7. Final accounts will need to be produced and approved by the board. This is usually done after the strike-off application, but on occasion, the process coincides with the strike-off application and the final accounts can be approved in the board meeting approving the strike-off application.
  8. Share capital must be returned to the shareholders.
  9. Any bank accounts and cards must be closed before an application can be made. It is important to note that any fees paid for the strike-off application cannot come from any company bank account or credit card.

These are some of the considerations and are by no means exhaustive. Besides, every company is different, and it would be important to speak with your accountancy, tax and legal advisors early to get a full handle of the scope of the task. Although the application process itself is simple and straightforward, the whole process could take up to 3-6 months or more depending on the condition of the company and state of its assets and liabilities.

The process for striking off an SME

If you make the difficult decision to apply for your company to be struck off, these are the main steps to striking off an SME:

  1. All creditors, members, employees etc must be notified BEFORE applying for strike-off so that they can object if they wish. This is usually at least seven days before the application.
  2. Notify other interested parties, such as HMRC, local authorities or government bodies.
  3. Convene a board meeting whereby a majority of the directors must agree to the strike-off application.
  4. Complete and send the DS01 Form, with the appropriate fee. This can be completed online, but all directors will need access to a computer at the time to complete the process in a timely manner because of point five below.
  5. Within seven days of the application, a copy of the application must be sent to every person who is a member, employee, creditor or director of the company as well as any managers or trustees of employee pension funds. This remains a continuous obligation to notify anyone who falls into these categories until the application is finally dealt with.
  6. Companies House will register the information, put it on the company’s public record and notify the company at its registered address to confirm it is not a bogus application. A notice of the proposed striking-off will then be published in the Law Gazette. Note that the registrar has a discretion rather than a duty to strike the company’s name off the register.
  7. If there is no reason to delay and no objections have been received, the registrar will strike the company off the register, usually not less than two months after the date of the notice.
  8. The company will be dissolved on publication of another notice in the Law Gazette.

Remember, at any time during the publication of the first notice in the Law Gazette, anyone can object, and it could involve creditors considering their options to recover any sums due. Hence it is important to have dealt with these matters as far as possible before an application is made, this is especially important if a new creditor appears on the scene, (by virtue of a miscalculation), because they would need to be informed with a copy of the application (item E above), to avoid falling foul of the legislation.

At any time, it is still within the power of the company to withdraw an application for striking off an SME once it has been made.

Thank you to Milan Zala, legal consultant at Farringford Legal for this article.