Striking off a company is a significant decision that can have substantial ramifications for all parties involved, be it directors, shareholders, creditors, or employees.
Although it might be considered the best course of action under certain circumstances, it is essential to thoroughly comprehend what it means, particularly in relation to the legal and financial consequences that arise.
This detailed guide will delve into the various aspects and repercussions of striking off a company, providing useful insight for those considering this option.
What are the Consequences of Striking Off a Company for Directors?
For directors, striking off a company can bring both relief and responsibility.
In situations where the business is no longer viable, this process can allow for a clear-cut, ending the operational and financial duties linked to the company.
However, it is crucial for directors to ensure they have fulfilled all their obligations prior to applying for dissolution. If they knowingly have outstanding debts, they could potentially face personal liability.
Notably, according to the UK’s Insolvency Act 1986, directors can be held personally responsible for company debts if they carry out wrongful trading.
Moreover, a director who has previously been involved in the striking off of several companies within a short period of time may be subject to restrictions as per the Company Directors Disqualification Act 1986.
These restrictions may limit their ability to form or manage a company in the future.
Related: How to Strike Off a Company Online.
What are the Consequences of Striking Off a Company for Shareholders?
For shareholders, the striking off process typically means the end of their investment.
Once the company is dissolved, shares are generally deemed worthless as there is no longer any potential for return on the investment.
Shareholders may be eligible to claim a ‘distribution in specie,’ which allows for the direct distribution of company assets in lieu of cash.
This is contingent upon the company having assets to distribute, and the directors agreeing to such a distribution before dissolution.
In addition, striking off a company could have potential tax implications for shareholders.
For instance, if the company’s assets are distributed and the total distribution is less than £25,000, this may be treated as a capital gain, rather than income, providing a potentially more favourable tax situation.
What are the Consequences of a Company Being Struck off for Creditors?
For creditors, the dissolution of a company can be a difficult pill to swallow.
Unless the company has enough assets to cover its liabilities, creditors may be left with unpaid debts.
Once a company has been struck off, creditors can apply to the court to have the company restored to the register, in an attempt to recoup their losses. However, the costs and time associated with this process may prove prohibitive.
Furthermore, in cases where directors have acted fraudulently or irresponsibly, creditors may have the option to pursue them personally for the company’s debts under the Insolvency Act 1986.
Nonetheless, this would typically require a substantial amount of evidence and potentially lengthy legal proceedings.
What are the Consequences of a Company Being Struck off for Employees?
The impact on employees when a company is struck off can be significant. Firstly, their employment ends.
Depending on the circumstances, they might receive redundancy pay, but this isn’t always the case.
If there isn’t enough money to cover this cost, employees may apply to the National Insurance Fund for a payment up to the statutory limit.
Striking off can also affect employees’ future employment prospects.
While employees may be free to take up employment elsewhere, there is always a chance they may have difficulty finding similar roles or conditions.
Also, it’s important to note that employers are not legally required to provide references, potentially making the job hunt even more challenging.
Related: Compulsory Strike-Off Action Has Been Discontinued.
What Happens to Assets During a Strike-Off?
When a company is struck off, it is necessary to dispose of any remaining assets. Under the Companies Act 2006, once a company is dissolved, all assets become ‘bona vacantia’, or ownerless property, which passes to the Crown.
Directors must ensure all company assets, including property, bank accounts, and intellectual property, are disposed of prior to dissolution.
Failure to do so could result in considerable inconvenience, as they will then have to apply to restore the company or purchase the assets from the Crown.
What Happens to Debts During a Strike-Off?
Striking off a company does not automatically dissolve its debts.
Instead, all outstanding debts become due immediately upon dissolution.
If the company lacks the funds to cover these debts, they also become ‘bona vacantia’ and are passed on to the Crown.
Creditors can, however, take steps to have the company restored to the register in order to recover their debts.
This is why it is critical for directors to ensure all debts are paid before applying for the company to be struck off.
Any attempts to avoid debts through dissolution could result in directors being held personally liable.
Final Notes On the Consequences of Striking Off a Limited Company
The decision to strike off a company should not be taken lightly.
Directors, shareholders, creditors, and employees all face significant consequences, and legal obligations need to be met to avoid further complications.
Comprehensive legal advice and careful financial planning are essential to navigate the striking off process and mitigate its potential repercussions.
At the crossroads of business decisions, navigating the complexities of striking off your company can seem daunting.
But remember, you don’t have to face this alone. As a director of a struggling limited company, making the right move is critical.
At Marchford, we specialise in assisting directors just like you.
With our comprehensive knowledge and experienced team, we can help you through the process of striking off your business from the Companies House register.
We provide expert guidance, ensuring your obligations are met and the impact on all parties is considered.
Don’t let uncertainty hold you back.
Take control of your business future today.
Contact us now for a no-obligation consultation and let’s navigate these challenging times together.
