Members Voluntary Liquidation versus Strike Off

A company can generally be removed from the register of companies at Companies House in one of two ways:

• members voluntary liquidation (a solvent liquidation process)
• voluntary strike off and dissolution.

The result of both processes is the same in that a company is removed from the register.

The processes, outline costs and issues with each option are considered below.

Members Voluntary Liquidation (MVL)

The MVL process requires the appointment of a licenced insolvency practitioner as liquidator, the agreement of the board of directors and at least 75 per cent of a company’s shareholders (members) before it can proceed. The appointment of a liquidator reduces the risk to a board of directors, the threat of future litigation and personal liability.

Summarised Process

The directors swear a Declaration of Solvency (which is supported by a balance sheet) and hold a board meeting to convene a meeting of shareholders at which it is resolved to place a company into liquidation and appoint a licensed insolvency practitioner. These meetings can be held with little or no notice with the consent of the shareholder(s). The convening of these meetings and all associated documents and filings at Companies House will be dealt with by the proposed liquidator.

The appointment of the liquidator is advertised in the London Gazette, and notice to creditors to submit claims must also be publicised by the liquidator to allow potential creditors to claim against the company. After 21 days, the liquidator can distribute any assets to the members either in cash or 'in specie'.

Once the liquidator has completed their work, which will generally be to realise any assets and distribute the surplus funds to the shareholders, they must obtain tax clearance. Once tax matters have been finalised the liquidator files a final return at Companies House and the company is automatically dissolved three months after the filing of the final return and struck off the register.

Generally, no claims against the company that were not registered with the liquidator can be made subsequently.

Although a liquidated company can be re-instated to the register within six years, it is exceptional for this to happen where the dissolution is a consequence of an MVL process.

Costs

The costs of an MVL are wholly dependent upon a company’s specific circumstances and the work required to be done. Typically, Crowe will provide a board of directors with a fixed fee proposal to give some certainty in respect of costs.

Voluntary strike off and dissolution

Summarised Process

To strike off a company the board of directors should consider all the steps to be taken at a meeting of directors or by way of a written resolution of the directors and approve the application for a strike off. On approval of the directors, form DS01 (Striking off application by a company) must be completed, be signed by a majority of the directors and be submitted to Companies House along with a fee of £10 for a paper application and £8 for an electronic application.

The law permits all, or a majority of a company’s directors, acting on behalf of a company, to close the company down, if it is no longer needed, by getting it struck off the companies register and dissolved but only if it:

• hasn’t traded for three months
• isn’t threatened with liquidation
• hasn’t changed name in the last three months
• hasn’t disposed of any stock in the last three months
• has no agreements with creditors, for example, a Company Voluntary Arrangement (CVA).

What does a board have to do?

There are safeguards built into the procedure for those entities that are likely to be affected by a company’s strike off/dissolution.

When directors apply to strike off and dissolve a company, they have certain responsibilities to close the business down properly. A large number of directors do not follow this procedure which leads to the strike off and dissolution being delayed or, in some cases, abandoned.

Before applying to strike off a company, directors must close it down legally which involves:

• announcing the plans to interested parties* (including HMRC, creditors, employees etc.)
• making sure employees are treated according to employment law provisions
• dealing with business assets including closing any bank accounts in the company’s name
• bringing the company's accounts up-to-date.

A copy of the completed strike off application form must be sent, within seven days, to those interested parties who could be affected.

*a breach of these rules could result in the director being fined and prosecuted.

What happens next?

The fee and strike off application are submitted to Companies House and this will be registered on the company’s record. The application will be advertised in the Gazette (allowing interested parties the opportunity to object).

If there is no reason to delay, the Registrar will strike the company off the register within 2 months of the date of the notice. The company will be dissolved on publication of a further notice in the Gazette. A board must keep a company’s business documents for 6 years after a company is struck off and dissolved. These include, inter alia, bank statements, invoices and receipts, VAT, PAYE and employee records.

Issues

If a company has net assets at the time that it applies to be struck off, these assets become the property of the Crown (i.e. the State).

A company can be re-instated to the register within six years (or indefinitely in the case of personal injury claims) if a court order is applied for by:

• any former director or creditor
• any person with a contractual relationship or potential legal claim
• any other person who appears to the Court to have an interest in the matter.

Costs

Crowe’s Company Secretarial team can help a board of directors to complete the above process and prepare board minutes, and letters to the shareholders and decide to file the necessary forms at Companies House. Crowe’s fee for this is typically £500 plus VAT. If a company requires further assistance, or there are additional complexities, then an additional fee may be charged.

Risk of a company being reinstated to the Register

When an MVL process has been concluded, the liquidator files their report and after three months Companies House removes the company from the register. As the MVL has been carried out by an independent liquidator, there is limited potential for a company to be reinstated to the register. With a dissolution process, it is vitally important that all creditors are advised of the directors’ intentions to have a company struck off. If a creditor is not so advised they can apply to have a company restored to the register and commence legal action to recover their debt. For a board, there may be personal implications if a company is dissolved when it has outstanding liabilities.

Conclusion 

If the board receives assistance in dealing with the process, utilising the strike off route will be cheaper than a liquidation, ignoring internal management time. Even if assistance is provided, the strike off route is the responsibility of the directors.

In an MVL, once the liquidation has been completed, generally no further claims may be brought against a company.

The MVL route advertises that a company is coming to an end and that all claims must be made, which may be useful for companies where details of all potential liabilities may not be known by the current management.

A liquidation brings with it peace of mind as a liquidator is appointed to bring a company’s affairs to a formal end, leaving no outstanding matters.

How Crowe can help

At Crowe, we have a team of experienced and licensed insolvency practitioners who can advise you on the best course of action, depending on your business’s circumstances. Please get in touch with either Steven Edwards or Vince Green who are licensed insolvency practitioners, or your usual Crowe contact.