Company Strike Off or Liquidation: What’s the difference?
So you’ve decided to close your limited company, but how do you know which option is the most suitable for you? You might choose a company strike-off or liquidation, and we’re here to explain the differences.
Closing your limited company
The best way to close your company depends on various factors. One of the main factors is your company’s financial situation. Business finances are one of the most common reasons why a business may be closed down. However, there are many other reasons too, such as deciding to start a new venture or retiring.
With so many options for company closure, we always recommend that you speak to an expert before making any decisions. This helps ensure that you remain in the best position when closing your limited company. Read our blog on how to close a limited company in the UK.
There are many things that need to be considered before closing a company, such as your financial situation, any creditors and whether you have accrued an overdrawn directors loan account. Read our blog on: how does a director’s loan work?
Whichever method of company closure you choose, you must ensure that you get any costs in writing. If all aspects are not checked in the first instance, you could end up with a larger bill at the end of the process. It’s also important that every avenue is checked to establish any personal liability you may have by placing your company into an insolvency procedure.
Your liquidator is required to check for wrongful trading within your company’s affairs. This can include preference payments or any trading that makes the creditor’s position worse. Evidence of wrongful trading can have serious ramifications for a company’s directors.
What is a company strike-off?
A company strike-off, or company dissolution, is the easiest and cheapest way to close a company. However, you must meet strict criteria.
- You have no debts, or you can pay off your debts before you start the strike-off process
- Your company must not have traded in the last three months
- Company name must not have been changed in the last three months
- Has not received any threats of liquidation or legal action (winding up orders etc.)
- Is not currently in the process of another legal agreement (Company Voluntary Arrangement etc.)
- You must not be in any contractual agreements with creditors for leases etc
A strike-off is only an option for businesses that do not owe any debts or can prove they can afford to pay off their debts.
Limited company striking-off process
Providing you meet the criteria, a company strike-off is very simple. All you need to do is complete a DS01 form from the Government website. This form will cost you £10.
Once completed, you send the form to Companies House, who will advertise your company closure in the London Gazette. This enables creditors and banks to object if they deem it necessary. The advert will be publicised for three months. If no one objects, your business will be successfully closed and struck off the Companies House register.
Can I strike off with a bounce back loan?
You cannot use the striking-off method if you owe debts, such as a bounce back loan. The bank will be notified of your attempt to strike off and will object. You will need to look at other methods of liquidation. You might be wondering, do you have to pay back a bounce-back loan? Find out here.
What is liquidation?
There are three types of liquidation, two voluntary and one compulsory. All methods seek to achieve the same result (the closure of a company) and require the assistance of a licensed insolvency practitioner. However, each process is different, and the most suitable option depends on the company’s financial position at the time of liquidation.
You may have a solvent or insolvent liquidation. If your company is solvent, then you can afford to pay all its debts on time. In contrast, an insolvent company is one whose liabilities are worth more than its assets, and it cannot pay company debts on time. This will affect the liquidation method that you can use.
The three types of liquidation are:
1) Creditors’ Voluntary Liquidation (CVL). A voluntary winding-up of an insolvent company because the business cannot pay its debts. A licenced insolvency practitioner must be appointed to liaise with creditors and take appropriate actions to sell the company’s assets, collect any outstanding debts, handle employee claims and strike the company from the Companies House register.
2) Compulsory liquidation (CL). Often referred to as ‘winding up by the court’, this is by far the most extreme action that can be taken against your company. A winding-up petition (WUP) is a legal notice issued by a creditor to a company that owes money. It will often follow a statutory demand or county court judgement (CCJ) and is a final demand to force payment or force the debtor company to close. If the debtor company cannot pay the outstanding debt, the court will place the company into compulsory liquidation.
3) A Members’ Voluntary Liquidation (MVL). A solvent liquidation process (the company can pay its debts in full). This formal procedure is typically used when shareholders wish to retire, release their investments or simply wind up the company. A members’ voluntary liquidation is a tax-efficient way of closing a business. Read our blog on a declaration of solvency.
Voluntary liquidation process
A creditors’ voluntary liquidation involves a company director choosing to liquidate the business rather than being forced to. This type of liquidation must be completed using a licensed insolvency practitioner. Once you file for the liquidation, it is the insolvency practitioner’s job to try realise some money to pay creditors, this is not possible in some cases. This may be achieved through the sale of company assets, such as stock or machinery.
The liquidation of a company is not free. For small companies with minimal creditors, prices usually start from £4000 (plus VAT). This can be worrying in itself, especially if you are already dealing with creditor pressure. Read our blog on what happens if I can’t afford to liquidate my company.
It may be worth assessing your eligibility for director’s redundancy pay at this stage. Providing that you meet the criteria, the average pay-out is £9000, which in the case of a small business, is more than enough to cover your liquidation costs.
For many company directors, weighing up the options of spending £10 to close a company or £4800, the answer seems easy. However, you are not meant to strike your company off if you have unpaid business debts, you should go through the insolvency process.
If you do manage to strike off a company with unpaid debts, you should be aware that your company can be reinstated for up to 20 years so that debts can be recovered. This can have serious repercussions and is not something you want to have to deal with years down the line.
I can’t afford to liquidate or strike off, what do I do?
If you have accumulated a lot of company debt and you can’t afford to liquidate, it can be pretty tough. Some directors can use money from their statutory redundancy pay, but not everyone will be eligible for the payment.
If you know there is no way of paying back your company creditors or raising any money at all, you may consider striking off a company. To do this, you must ensure that you write to all of your creditors, informing them that there is no hope of financial recovery or paying them back.
You should provide them with a copy of the DS01 form, along with an invitation to wind up the company themselves. We’re here to help with all aspects of liquidation and company closure.
Your creditors may appreciate the honesty and figure that chasing the money you cannot make isn’t worth it. They may agree to have the company struck off and removed from the Companies House register.
If you attempt to strike off the company without informing your creditors, you could end up facing serious consequences further down the line. Therefore, it is always worth being honest and keeping your creditors updated. With honesty, you could avoid being held personally liable for the company’s existing debts. Remember this is not an option if you have taken a BBL.
Company strike-off or liquidation: Which is right for me?
The method that is right for you completely depends on your financial circumstances. For example, if your business is solvent, you can easily use a company strike-off to end the business operations. Alternatively, if your company is insolvent, a creditor’s voluntary liquidation may be the most appropriate option. We can support you with a company strike-off or liquidation.
We know how tough it can be for company directors to decide which option is best for business closure. Our expert team are always happy to offer honest, confidential advice on the best formal process to close your company.
Strike-Off or Liquidation FAQs
What are the main differences between strike-off and liquidation?
There are many differences between a strike-off and a liquidation, but they do have the same outcome of a business being closed. A liquidation is a formal procedure where an insolvency practitioner is appointed. If you have outstanding debts, a form of liquidation must be used.
In contrast, a strike-off costs just £10 and requires no legal intervention. However, you must have no outstanding debts to use the strike-off process.
When should a company consider strike-off?
You must not have any outstanding debts when using a strike-off method. If you are eligible, you can use a strike-off when you want to close your company. This may be due to starting a new venture, retiring, or simply not wanting to run the company anymore.
Can a company be restored after strike-off or liquidation?
Once the company has been struck-off, it can only be restored by court order. However, if you are found to have struck off the company with outstanding debts, you will be found out. Your company can be reinstated by an outstanding creditor for up to 20 years.
A liquidated company may be restored if further investigation is necessary. Find out more about a director’s conduct investigation.
What happens to debts when a company is struck off?
Depending on the type of liquidation you choose, unsecured debts might be written off. Your insolvency practitioner will attempt to recuperate money to pay back your creditors.
For debts to be written off, you must have acted responsibly. Find out more about a director’s duties in insolvency. Please seek advice if you are worried about outstanding debts.
I'm Chris Worden, Managing Director at 1st Business Rescue. With over 7 years of experience, I help UK directors navigate the complex world of UK corporate insolvency. We offer free and independent advice to UK directors and advise them about what options may be available to them if their limited company starts to struggle.
I am passionate about helping other directors overcome their business challenges and get back on their feet, as I was once in the same position as them. I had a business that became insolvent, and the advice out there was confusing and overwhelming. I am here to provide honest and valuable advice to UK directors.
I am proud to say that we are one of the only 5-star corporate insolvency companies on Trustpilot with hundreds of 5-star reviews, and we publish videos weekly on our YouTube channel. Our channel is designed to educate UK directors about insolvency and debt advice. Check it out here:
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