When a company is struck off the register at Companies House it ceases to exist. Any assets not already disposed of are deemed bona vacantia. In plain English, it means the now ownerless items such as bank balances and property are passed to the Crown. Once a company is struck off there is no entity for creditors to chase. For some creditors, the decision to instruct a debt collector happens slowly or even too late. For others, it is a routine part of their credit management policy. For most, the red flag of a striking off notice is sufficient to warrant immediate referral to a debt collector. Advocate has recovered payment in cases where a voluntarily striking off application was seemingly being used to neutralise creditor action. In this article, we explore how it should and should not be used. We also explain how to stop the striking off and ensure the company exists long enough to recover payment of your invoices.
Striking Off the Correct Way
Not every company trades until the day it becomes insolvent, and not every company will achieve what the directors hoped. Making an application to strike off the company is a relatively simple procedure for directors. It does not require the expertise of an accountant or insolvency practitioner. The directors have a duty to inform those who may be affected by the application such as shareholders, employees, pension fund trustees, creditors, banks, landlords, HMRC and DWP. The notice will be published at Companies House and in the applicable Gazette (London, Edinburgh, Belfast) and the company dissolved no less than two months from application. Applying to voluntarily strike off a company would be appropriate in the following circumstances:
1) A dormant company that is no longer required.
2) Closing a subsidiary due to restructuring.
3) Cease trading a company with low profitability.
4) Directors intend to focus their efforts on a new venture or retire.
5) Unreconcilable differences between directors, much like divorce proceedings!
Striking Off as a Tool for Evasion
Over the years, the team at Advocate has seen directors attempt to strike off their company for all the wrong reasons. Essentially it all reverts back to one principle – binning the company to silence creditors. In addition, directors won’t face the scrutiny of an insolvency practitioner. When a striking off notice is issued, debt collection action by Advocate cannot take place until it has been suspended or rescinded. Before Advocate commences debt recovery, you would need to raise an objection to the striking off at Companies House. The main reasons for objection are:
1) The company has traded within the last three months. This includes being issued with invoices, taking delivery of goods/services or selling assets. Trading also encompasses insolvency proceedings, administration or a voluntary arrangement. Essentially the company must have no trading activity, akin to being dormant.
2) The company has changed its name in the last three months. Some directors have a pattern of dissolving a company only to start a new one with the same name.
3) Debt recovery action is about to be taken or is currently in motion. The company should not have any debts outstanding. You can evidence action by providing details of the outstanding debt, showing Advocate is about to commence action, or providing proof of court action by way of CCJ or Winding-up Petition.
4) Legal action is being taken against the company. Such as being the defendant in a compensation or corporate negligence case.
5) The directors have committed tax fraud. Some cases hit national headlines. Others will be in regional news publications.
6) The directors have not informed all interested parties. Such as when Advocate is instructed and first makes the client aware of a voluntary striking off notice.
A full list of reasons why an objection can be made can be found at http://www.legislation.gov.uk/ukpga/2006/46/section/1005
Preventing the Striking Off
Raising an objection is a fairly simple process. In the same way, voluntarily striking off a company is open to being abused by those with disingenuous intentions, an objection can be vexatious. An aggrieved former employee on a mission to frustrate their bosses perhaps! Objections should be put in writing to firstname.lastname@example.org or posted to the dissolution section of Companies House. The creditor must sight one or more of the reasons for objecting and provide evidence to back it up. The objection can easily be refused if key details such as the debtor’s full company name and registration number are not referenced. It is wise to include a recent example of chasing the debt, or communication with Advocate confirming debt recovery action is about to be taken.
Assuming Companies House approves the objection, they will provide a window for the suspension allowing Advocate to commence action. If you need a longer time frame, we recommend you contact Companies House at least two weeks before the window closes. Should you so wish, raising an objection can be an anonymous process for you and your organisation. You can complain about the debtor not meeting the threshold for a voluntary striking off which may lead to Companies House launching its own investigation.
Restoring a Company
It’s not always game over if your debtor has already been struck off. As a creditor with a valid claim, you can make an application to restore a company to the register within six years of dissolution. This can be an expensive process through the Courts. The claimant will normally bear the costs incurred by the Crown and Registrar incurred in dealing with the restoration. It will require the services of a solicitor and rarely results in successful debt collection because all remaining assets went to the Crown at the time of dissolution. Creditors are not the only ones who can seek the restoration of a company. Anyone with an interest or contractual relationship with the company can apply such as a former director, liquidator, landowner, or pension fund trustee.
Compulsory Striking Off
When a company has not filed statutory paperwork such as the Confirmation Statement or Annual Accounts, Companies House can issue a Compulsory Striking Off Notice. Creditors can object to it in the same way they would for a voluntary notice. The resignation of all directors will also warrant a compulsory notice. In most cases the directors are unintentionally behind in their submissions to Companies House, but we still require an objection to be raised as this safeguards your right to recover payment. Like all debt collection agencies, Advocate has come across situations where submissions are intentionally not filed because the directors do not wish to pay for a liquidation.
The Companies Act 2006 gives directors an obligation to act in the best interests of the company, creditors and interested parties. Voluntarily striking off a company to shirk responsibility and bin debt can result in the director being charged with an offence such as:
1) Applying for strike off when the company is ineligible. This includes current trading, outstanding creditors or recovery action.
2) Not withdrawing the application if the company becomes ineligible. You’d expect the directors to have made sure no invoices are outstanding before applying, but there is a fine line between proving human error and intent to deceive.
3) Not informing all interested parties within 7 days of application. If you have recently traded with the debtor or have an outstanding invoice, then you are an interested party.
4) Providing false or misleading information to support a striking off application. This can be anything from trying to strike off a company the signatory is not responsible for, to forging the approval of another director.
A conviction for any of the above offences carries up to 15 years of disqualification from being a company director. If appearing before a magistrate a conviction could be accompanied by a fine of up to £5,000 for the offending director. Should the case fall before a jury the fine can be unlimited. Failing to inform interested parties of the application to voluntarily strike-off (intention to deceive) can result in a fine and/or prison sentence.
Right to Recover
The decision of a director to voluntarily strike off a company and deprive creditors of their right to receive payment is not one you should accept. For a lot of debt collection agencies, a striking off notice is a red flag and will prevent them from taking action. Advocate is different and has successfully recovered payment on behalf of clients once an objection at Companies House has been approved. If it is not possible for us to recover your debt within 14 days, you decide whether we close file (at no cost to you) or initiate court proceedings. The directors may have nothing to lose in striking off the company, but you the creditor has everything to gain when instructing Advocate.