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A compulsory strike-off is a process where an insolvency practitioner will file the necessary documentation with the insolvency service to dissolve a company and its assets.
What Is a Compulsory Strike Off?
The advantages of this type of insolvency:
- relatively quick and straightforward insolvency procedure
- no business owner or director involvement is required
- once filed, there is no possibility of any further action from that company ever again
- only available for those companies who have failed to submit annual returns as required by law
How Is It Carried Out?
Once the insolvency practitioner has received all the documents and details needed, he will submit an application to dissolve the limited company. If everything is correct, an insolvency order will be made, for which there is no appeal. On the insolvency order being made, the company is struck off the register and ceases to exist.
Why Would a Company be Struck Off?
Because a compulsory strike-off is still an insolvency procedure, there are only certain reasons why a company will be struck off, most of which have to do with failure to meet company formalities. This means that companies who have been insolvent from the start will not find themselves subject to this type of insolvency procedure. Therefore, it does not cause any issues for businesses and their creditors.
How Long Does It Take?
As stated above, once the insolvency practitioner has received all the necessary details and documentation, they should submit an application to dissolve the company. If everything goes smoothly, this can happen as quickly as two weeks, so insolvency practitioners need not file such documents as bankruptcy or administration forms on behalf of their clients under insolvency law.
Who Can File for a Compulsory Strike Off?
Not all insolvencies require insolvency practitioners to take more complex insolvency procedures like bankruptcy or administration, which means that insolvency practitioners can file for a compulsory strike-off. There are some restrictions on which type of companies can be subject to this insolvency procedure, but most types of closed companies will be eligible.
What if the Insolvent Company is Still Open?
Let’s say there is an insolvent company with no assets and debtors, but they still have employees working who are making sales every day- so it isn’t bankrupt yet. A compulsory strike-off requires that there has been absolutely no activity from the company in question, so if the insolvent company is still open, this insolvency procedure cannot be filed.
On top of that, insolvency practitioners cannot file for a compulsory strike-off on behalf of their clients until they have tried to resolve insolvency through an informal or formal arrangement with creditors, which can take weeks or months depending on the particular circumstances.
A compulsory strike-off is one of many insolvency procedures available to insolvency practitioners and their clients. It may not always be the best option available, but it does offer specific benefits that other insolvencies do not, as no further action from that company ever again.
Why Should We Do It?
There are four main reasons why insolvency practitioners would advise a compulsory strike-off:
1) A director will be unable to start or run a business while his other one has outstanding debts
2) Providing protection for creditors in terms of ensuring that assets will be available should they wish to make future claims against the insolvent company
3) Ensuring that any loose ends are tied up quickly and efficiently
4) Acting as a deterrent to other directors who may do this in future. If they see an example where it has been done for insolvent companies, they may be less likely to allow it to happen to their own company.
Who Can Do It?
Compulsory strike-off is only available to insolvency practitioners, and as such, directors should not take this course of action as an option as there are other insolvency procedures that would be better suited. If a director is considering insolvency for his business, he should always seek the advice of an insolvency practitioner first.
Is There an Alternative?
Insolvent directors may seek a compulsory strike-off, but this isn’t necessarily the best course of action. Directors who wish to put their company into liquidation should speak with insolvency practitioners about Insolvency Administration Orders (IAO) instead, which will ensure a more controlled insolvency process.
Companies House Compulsory Strike off Process
There are several steps that insolvency practitioners will follow to get their client’s insolvent companies struck off.
1) Filing the insolvency form
2) The insolvency practitioner will then file a statement of truth with Companies House, followed by verifying the insolvency set up an insolvency case number
3) then, they must send a letter to creditors along with how to respond to this insolvency procedure
4) Once all the information has been sent out, there is no return for any further correspondence. Any court proceedings can be stopped once this happens, so creditors should consider responding if they wish to do so
5) When everything is completed, Companies House registers the body corporate as being dissolved
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