Company directors who are considering members’ voluntary liquidation (MVL) may be wondering what a compulsory strike-off is and if it can be stopped.
A compulsory strike-off, which is also known as dissolution, happens when a company is removed from the Companies House register. It can become compulsory if a third-party petition, most often Companies House themselves for non-compliance to filing accounts or annual statements.
The request is placed in the Gazette. There is then a three-month period for any other person to object before being struck off. If the strike-off is voluntary, you need to send a DS01 form.
What are my options following a request to strike off?
Now that the government has given you more choice about what to do with your company, here are some of the key issues for directors in compulsory strike-off situations.
- The process is not reversible – once a company is struck off, it cannot be reinstated.
- You must have no debts or liabilities outstanding.
- If you want to keep trading but are happy for the company to cease trading: just let the process run on (you can still wind up assets in this situation). If you want to trade and intend an application to suspend, the request should be filed with Companies House so they can review your specific circumstances.
Company directors who are considering compulsory strike-off should be aware of the objections raised by shareholders, creditors, and other interested parties.
- Shareholders may object if they feel the company is being liquidated unfairly or without good reason.
- Creditors will want to make sure they can recover any money owed to them before the company is removed from the register.
- Other interested parties, such as government agencies, may also object to a compulsory strike-off.
What happens to the remaining assets?
When a company is dissolved, what happens to the assets?
- Any leftover assets and cash are referred to as ‘bona vacantia,’ with Crown taking automatic possession
- If you want to retain ownership of the assets, you need to submit an objection application to the strike-off
- If the objection is upheld, the company continues trading and stays active
- You can move the assets out of the business or continue trading
Members Voluntary Liquidation
Members Voluntary Liquidation is a process that enables shareholders to appoint a Liquidator to close down a solvent company.
Once the Liquidator has realized no outstanding company liabilities, a capital distribution will be paid to shareholders.
Why might a company be placed into Members Voluntary Liquidation?
What is Members Voluntary Liquidation? Why might a company be placed into MVL?
Here are the reasons why:
- The company wants to cease trading, and for shareholders, this may be an appropriate exit strategy since they may get a tax-efficient release of their capital under entrepreneurial relief.
- The distribution as a capital, through MVL, may have tax benefits compared to a distribution under income tax.
- Some shareholders may wish to split the company’s assets
- Directors or Shareholders may look to retire, move country, or they are an IR35 company which is no longer required
- MVL might be used as a tool to re-organise a group of companies, for example, if a subsidiary company may have become dormant, and this is how the company can close this down.
What is the Difference between an MVL and a CVL?
Company directors seeking information about the difference between an MVL and CVL should be aware of the following:
- MVL’s are the appropriate means of liquidating a solvent company
- CVL is when directors choose to liquidate their insolvent company voluntarily, rather than waiting for compulsory liquidation
- MVL’s are relatively quick and inexpensive
- CVL should be considered as an alternative to MVL only when it is likely that the company can still be saved (depending on their situation)
- An MVL ensures that directors continue to act in the best interest of creditors throughout proceedings, whereas a CVL does not.
- MVL’s can also be used for dormant companies, where the directors and shareholders choose to liquidate voluntarily, whereas a CVL cannot; it is only relevant when a company has failed or gone insolvent.
Now that you understand the basics of Members Voluntary Liquidation, it’s important to know what steps you need to take if you want to retain ownership of the company’s assets. In order to do this, you’ll need to submit an objection applies to the strike-off.
If your objection is upheld, the company will continue trading and stay active. However, if you’re not interested in continuing operations, you can move the assets out of the business or liquidate them altogether. Contact a licensed insolvency practitioner for further help.