How to strike a company off with debts
A question that we get asked a lot is ‘can I strike a company off that has debts?’ This question often comes from directors who are struggling to keep their business afloat.
Like many questions we get asked about liquidation and company closure, it depends on your personal circumstances.
You are not really meant to use the striking off/dissolution process to close your company down if you have outstanding debts. The process of striking off involves a company being removed from the register at Companies House.
Solvent business striking off
The method of striking off is often used by directors of solvent companies. This is done so that the director can afford to pay back the debts the company owes without having to continue operating the business as usual after.
When a solvent company uses this method, they will pay their outstanding debts, inform HMRC and provide a final, up to date set of accounts. If there is any money left in the business following this, it will be distributed among the shareholders of the business. The DS01 form required for a striking off will be filed and the company will cease to exist.
Insolvent business striking off
If your business is insolvent then it’s likely that you are struggling to pay company debts when they fall due. In this case, it is not really appropriate to use the striking off procedure.
The best course of action you could take is to enter an insolvency procedure, such as a liquidation. For many directors, this brings a new problem in itself. How do you afford to liquidate when you have no money in the business?
Liquidation costs UK
Liquidations are not cheap which is often the main reason business owners attempt to use the cheaper method of striking off. A small liquidation is going to cost at least £4000, which a lot of people don’t have. One option that some business owners use is gaining the money through the sale of company assets, but what if there are no assets?
If you owe debts to a range of creditors and you know there is no money left to pay them back, you could consider writing to all of your creditors and explaining this to them. When doing this, you should inform them of your intention to strike off the company. You could also suggest that they can liquidate your company themselves, which would mean they are responsible for financing a statutory demand or a winding up petition.
If you’ve made them aware that there is no way you can afford to pay them the money you owe, it is highly likely they will allow you to strike the company off yourself.
Strike off warning
The main problem directors face when they do decide to strike off a company with debts is that the company can be reinstated by any of your creditors if they decide they would like the money back.
How to strike a company off with debts
The first step is to file a DS01 form which can be found on the Government website. You can either complete the form online for £8 or receive a paper copy for £10.
Next you’ll need to make your creditors aware that you are attempting to strike off your company. You will need to make it clear that you have no money in the business and no assets to realise, therefore meaning you have no way of paying them back. Be sure to send the letter as a registered post so that you have proof of delivery.
Once you have officially filed your DS01 form, your attempt to strike off will be advertised in the London Gazette and the Scottish equivalent. At this point, your creditors are able to object to your dissolution. While some may object to your company being struck off the register, many will see no benefit to objecting because they know you have no way of paying them back.
If you want to close down your limited company in the safest way that means you don’t need to worry about your company being reinstated and chased for outstanding debts then you would choose a liquidation.
While a liquidation is not the cheapest option, it is the most likely to give you peace of mind and protect you in the future.
If you are worried about how you will pay for your liquidation costs, you should consider looking into director redundancy pay. The average director redundancy pay out is £9000, which should be more than enough to cover or at least help towards the cost of your liquidation. Be aware that the exact amount you will receive is dependent on a range of factors such as your age and length of service.
Striking off with a bounce back loan
If you’ve taken a bounce back loan, you are not going to be able to use the striking off method. Previously there was a loophole that meant directors were able to slip through the net and use this method. However, a new law has come into force to prevent this.
If you have a bounce back loan and your company is insolvent, your only option is to use a liquidation process. This is the only way that the bank can access their guarantee from the government and claim back the money you owe.
We would advise sticking to the route of liquidation if you have any outstanding debts and please do not try to strike off the company with a bounce back loan.
If you have debts but not a bounce back loan, please make sure that you inform your creditors that you cannot afford to pay the debts. We’re always happy to offer our advice.