Should I strike off or liquidate my company?

If your limited company has no debts, you can close it down either by striking it off the register at Companies House or using a formal liquidation procedure. Voluntary strike-off, also known as dissolution, places the responsibility for closing down the company firmly with yourself and other directors.

Voluntary liquidation, on the other hand, is an official process undertaken by a licensed insolvency practitioner (IP). The cost of liquidating is considerably more than strike off, but there can be serious ramifications if you try to strike off your company and don’t meet the stringent requirements. 

So looking at voluntary strike off first, what are the eligibility criteria you need to meet to ensure you aren’t at future risk of either disqualification as a director or personal liability?

Eligibility requirements for voluntary strike off

There are specific requirements that you need to meet before you can strike your company off the register at Companies House. Briefly, these are:

• Ceasing trade and other business activities for three months prior to strike off, apart from those required to wind up the company
• Not changing the company name during the three months leading up to strike off
• Being solvent, with no threat of liquidation present

The last point is particularly important when you’re striking off your company, as this method of closure is for solvent businesses only. If you attempt to strike off a company that owes money, you could face allegations of misconduct and even personal liability for the debts involved.

Do the disadvantages of strike off outweigh the benefits?

There are some advantages to voluntary strike off when compared with liquidation. It’s inexpensive, and can be a quick way to close your company, but the potential disadvantages may outweigh the benefits.

Cons of voluntary strike off

• Creditors can oppose a strike off – HMRC are known to quickly oppose such a move if you have tax debts, and will then attempt to force your business into compulsory liquidation.
• Directors must ensure all creditors are informed - the company can be reinstated for up to 20 years after closure if a creditor subsequently makes a claim. It would be treated as if strike off hadn’t taken place, and your conduct as a director would be investigated.
• Directors face serious repercussions if the company is insolvent, including personal liability and disqualification for up to 15 years.

Solvent liquidation

A Members’ Voluntary Liquidation (MVL) is a formal procedure whereby the business is wound up by a licensed insolvency practitioner. Again, the company must be solvent to be eligible for this process, and you sign a formal Declaration of Solvency in this respect.

This means you believe the company can repay all its debts, plus interest, within 12 months of closure. A licensed IP carries out the procedure and ensures you meet all your statutory obligations as a director, so minimising the potential for problems in the future.

Insolvent liquidation

If the business is found to be insolvent, another form of voluntary liquidation can take place. Creditors’ Voluntary Liquidation (CVL) also offers benefits to yourself and other directors, as you may be able to claim statutory redundancy pay.

The average claim for director redundancy is £9,000, which would help to pay for the process if necessary, or perhaps repay some of the company’s debt. It could also be used to support your own personal finances.

Strike off or liquidation?

To answer the question, “Should I strike off or liquidate my company?” you need to consider what would happen to existing debts. If you can’t repay them and try to strike off the company, the application would be challenged. Furthermore, if a creditor files a claim for a debt in the future, the company will be reinstated.

When you liquidate a company, if it’s insolvent, any unpaid debts that remain are officially written off so there’s no chance of being held personally liable for them in the future. The business is closed down in an orderly manner when you opt for solvent or insolvent liquidation, and you gain the support of a licensed professional.

Liquidation and director redundancy

One of the most significant benefits of entering liquidation rather than trying to strike off an insolvent company is the potential for directors to claim redundancy pay. Briefly, you must have worked under a formal contract of employment for at least two years, and received a regular salary under PAYE.

Our expert team at UK Liquidators has more than 25 years’ experience of helping directors voluntarily liquidate their companies. We can provide more detail on director redundancy and your potential eligibility, and guide you on the best way to close your company. We operate a wide network of offices around the country – please contact one of the team to arrange a free same-day consultation.