Compulsory Strike-Offs – How A Simple Administrative Error Could Cost Your Business Dearly
It was revealed in the press last month that dissolution proceedings had been started against the National Theatre after an administrative error when filing their accounts with Companies House.
A “First Gazette notice for compulsory strike off” was issued against the theatre, which is a registered charity.
Companies House guidance says that such a notice can be issued if
• Company documents that should have been sent have not been received
• Mail sent to a company’s registered office has been returned
• The company has no directors
Since the theatre had appointed three new directors since November 2020, the third condition was clearly not the case.
In a statement, the National Theatre said that after they had filed their accounts, they learned that Companies House wanted them to use “The Royal National Theatre” throughout the accounts, rather than “The NT”, which had been used in previous years and which had been confirmed as acceptable. Following the notice of compulsory strike-off, the theatre said that it had resubmitted its accounts with the problematic detail amended and was informed that the notice would not be taken any further.
What is a compulsory strike-off?
Under the Companies Act 2006, a company or organisation can be removed from the Companies House Register if there is reason to believe that it is no longer carrying on a business or is no longer in operation. Once it has been removed from the Register, it will no longer legally exist.
Compulsory strike-off is usually caused by non-compliance with regulations, including failure to file the documents required by Companies House.
The process of Compulsory Strike-Off Returns was suspended during the pandemic to help businesses who were struggling with the consequences of the lockdown and other social distancing regulations, but the suspension was concluded in November 2020.
What is the process involved in strike-off?
Companies House will usually send at least two formal letters to the company, letting them know that they have failed to file documentation as required. The letters will advise that if this is not resolved, the company faces removal from the Register. Should no reply be received, Companies House will publish a first ‘strike-off’ notice in the Gazette, the official journal of public record. This is called the ‘First Gazette Notice for Company Strike-off’ and is what was sent to the National Theatre.
When this notice is published, any parties who have an involvement with the business (and that can include directors, shareholder and associated third parties) have two months to respond and raise an objection to the strike-off. If no objections are made, then at the end of the two-month period the company is struck off the Register.
What happens after strike-off?
Once a company has been struck off the Register, any assets that remain undistributed will automatically be transferred to the Crown. The technical term for this is “bona vacantia”
Investigations can start into the behaviour of the company directors and there is a chance that they can be disqualified as directors for a period of up to 15 years.
If, following the strike-off, the company carries on trading, the directors and shareholders no longer have the protection of limited liability and they will be personally liable if the company runs up any debts and liabilities.
What can a business do?
A potential strike-off is relatively easy to deal with, if the company is still capable of trading. If Companies House has requested a required document after the company has failed to supply it, then immediately replying with the documentation in question attached should generally resolve the matter.
If the strike-off has reached the stage of appearing in the Gazette, then what happens next will depend on whether the directors are happy to see the company dissolved, which – in itself – depends on whether the strike-off has arisen due to an inadvertent administrative lapse or something more significant.
If a Gazette notice has been published and the company is to continue trading, the directors must file a suspension application with Companies House, together with any outstanding paperwork. Once the filing history has been brought up to date, the suspension will (provided there are no further matters outstanding) be cancelled.
If there is no objection to the company being removed from the Register and thereby ceasing to exist, but the directors still have assets in it, they will have to object to the strike off to stop the transfer of those assets to the Crown. If the objection is successful, then a transfer window opens, during which the assets can be moved or sold and the proceeds distributed amongst the shareholders.
Creditor reversal of a strike-off
Creditors who have not been paid off before the strike-off can take action to have the company reinstated so that they can start liquidation proceedings.
As publication in the Gazette means that any compulsory strike-off action becomes a matter of public record, this may significantly affect the company’s reputation and future prospects if it does continue trading. Additionally, individual directors may find that the strike-off dogs them in any future business ventures they undertake.
What does the law say?
The process of compulsory strike-off is covered in Section 1000 of the Companies Act 2006:
Power to strike off company not carrying on business or in operation
(1) If the registrar has reasonable cause to believe that a company is not carrying on business or in operation, the registrar may send to the company a communication inquiring whether the company is carrying on business or in operation.
(2) If the registrar does not within 14 days of sending the communication receive any answer to it, the registrar must within 14 days after the expiration of that period send to the company a second communication referring to the first communication, and stating—
(a) that no answer to it has been received, and
(b) that if an answer is not received to the second communication within 14 days from its date, a notice will be published in the Gazette with a view to striking the company's name off the register.
(3) If the registrar—
(a) receives an answer to the effect that the company is not carrying on business or in operation, or
(b) does not within 14 days after sending the second communication receive any answer,
the registrar may publish in the Gazette and send to the company a notice that at the expiration of 2 months from the date of the notice the name of the company mentioned in it will, unless cause is shown to the contrary, be struck off the register and the company will be dissolved.
(4) At the expiration of the time mentioned in the notice the registrar may, unless cause to the contrary is previously shown by the company, strike its name off the register.
(5) The registrar must publish notice in the Gazette of the company's name having been struck off the register.
(6) On the publication of the notice in the Gazette the company is dissolved.
(a) the liability (if any) of every director, managing officer and member of the company continues and may be enforced as if the company had not been dissolved, and
(b) nothing in this section affects the power of the court to wind up a company the name of which has been struck off the register.