If it looks too good to be true...
There are a number of websites offering Company dissolution as an easier, cheaper and responsibility free alternative to a formal insolvency procedure such as liquidation. They claim that, provided the necessary steps are followed, companies with outstanding sums due to creditors, including outstanding amounts owed in respect of "Bounce Back" loans, can be "dissolved" for a small fee with no comeback to Directors.
A cursory glance at the website of Companies House and form DS01 (Ref 1) would appear to support this position, with the criteria for strike off seemingly to be mainly (albeit not limited to):
- The Company has not traded or changed its name in the last three months; and
- It is not the subject (or proposed subject) of insolvency proceedings or a compromise arrangement with creditors.
Don't forget the small print...
Notification
Creditors (including contingent or prospective creditors) must be advised of the proposed strike off alongside employees, shareholders, pension managers or trustees and other directors within 7 days. Stakeholders can object to the proposed striking off following the London Gazette advertisement.
Tax Returns
Prior to applying for strike off, the Company should ensure its tax returns are up to date, final accounts are filed with HMRC and any payments due to them are paid (Ref 2).
Too little, too late
In the current climate of HMRC backlogs, bank closures and general apathy in dealing with correspondence in a timely manner it is not unreasonable to consider that by the time HMRC and others who may object become aware the Company will already have been struck off.
If the Company is struck off prior to an objection being made it can only be restored via an application to Court.
HMRC (or any other person such as a different creditor) may take steps to restore the Company, especially if it is a point of principle for an aggrieved creditor. However, even if they do not, that is not an end to the matter by any means.
Unfit Conduct
Even if the Company was dissolved and not restored, The Insolvency Service now have the power to investigate the conduct of Directors of a dissolved Company without the need for it being restored to the Register, if there are concerns there may have been unfit conduct (ref 3). The scope of unfit conduct is wide, including "a director has not complied with the rules when applying to strike off a company from the Register of Companies."
A person who fails to perform the duty to give notice commits an offence, and if they do with the intention of concealing the making of the application from the person concerned, they commit an aggravated offence punishable by a term of imprisonment.
On the basis that the definition of creditor is wide a director acting cautiously may decide not to make an application for strike off should a creditor of the company inadvertently not be provided with notice.
If sums are due to HMRC (including interest and fines) the rules when applying to strike off a company have not been complied with.
These investigations could lead to disqualification and, in some instances, criminal proceedings being brought
What to do?
A Director, knowing the Company is, or is likely to become, insolvent has a fiduciary duty to act in the best interest of creditors. They should seek professional advice from their accountant, an Insolvency Practitioner or (ideally) both. This advice will be tailored to the specific circumstances of the Company.
The timely seeking of advice not only widens the potential options available to the Company, but also evidences the Director is taking their duties seriously and acting responsibly. This conduct is in direct contrast to an application to strike off an insolvent company and hope it falls "under the radar" and is likely to be viewed as such by the Insolvency Service.
Please note this newsletter is for information purposes only and does not constitute legal or professional advice.References:
Ref 1: https://www.gov.uk/government/publications/striking-off-or-dissolving-a-limited-company/striking-off-or-dissolving-a-limited-company
Ref 2: https://www.gov.uk/strike-off-your-company-from-companies-register/close-down-your-company
Ref 3: https://www.gov.uk/government/publications/dissolved-company-investigations/dissolved-company-investigations#who-can-we-investigate
