When to Pull the Plug: A Practical Guide to Striking Off or Liquidating Your Business

WHAT YOU WILL LEARN

1. The differences between striking off and liquidating your business.
2. When to choose one process over the other.
3. The steps required to ensure the process is carried out correctly.

INTRODUCTION
When closing down your business, there are two main ways to proceed: striking off or liquidation. Determining which route is most appropriate depends on whether your company is solvent, whether there are assets available for distribution and whether there are any third parties who may have a claim against the company. This guide outlines the key differences between company strike-off and liquidation, helping you decide which process best suits your needs.

Striking off is a straightforward and cost-effective method for dissolving a solvent, debt-free company that has not traded or changed its name in the last three months.

Liquidation, by contrast, is a formal process managed by an insolvency practitioner. It is used either to:

(a) close insolvent companies (via a creditors’ voluntary liquidation); or

(b) distribute the assets of solvent companies (members’ voluntary liquidation).

Once a company is dissolved (either by strike-off or liquidation), it ceases to exist and is removed from the register at Companies House. Any remaining assets held by it revert to the Crown.

ELIGIBILITY

Voluntary strike off is only available to solvent companies. Voluntary liquidation is available to both solvent and insolvent companies.

You can only strike off your company if:

(a) it has not traded or sold goods or services in the last 3 months;

(b) it has not changed its name in the last 3 months;

(c) it is not under threat of liquidation; and

(d) it has no outstanding agreements with creditors.

If these conditions are not met, strike off will not be available.

In a liquidation, the company’s assets are realised and used first to repay creditors. Any remaining funds are distributed to shareholders.

There are three main types of liquidation:

1. Creditors’ voluntary liquidation – this is used when a company cannot pay its debts.

Key steps:

(a) shareholders holding at least 75% by value must pass a winding-up resolution;

(b) the resolution must be filed at Companies House within 15 days;

(c) the decision must be advertised in The Gazette within 14 days; and

(d) a licensed insolvency practitioner must be appointed as liquidator.

2. Compulsory liquidation – this is initiated through the courts, typically by creditors, when a company cannot pay its debts.

Key steps:

(a) a winding-up petition is submitted to the court;

(b) court fees currently totalling £2,880 (£2,600 petition fee + £280 hearing fee) are paid; and

(c) the petition must be served on the company and advertised in The Gazette at least 7 days before the court hearing.

3. Members’ Voluntary Liquidation – this is used when a company is solvent, but the owners wish to close it. Common reasons for this are: retirement; the business is no longer required; and there is no successor to continue operations.

Key steps:

(a) directors must sign a declaration of solvency confirming debts can be paid within 12 months;

(b) shareholders must pass a winding-up resolution within 5 weeks;

(c) an insolvency practitioner is appointed as liquidator;

(d) the resolution must be advertised in The Gazette within 14 days; and

(e) the declaration must be filed at Companies House within 15 days.

COSTS

Striking off is generally the most cost-effective way to close a company. The process involves a relatively low administrative fee and can often be completed without professional assistance, making it suitable for simple, solvent, and debt-free businesses.

Liquidation, on the other hand, is a formal legal process and therefore involves professional fees, primarily for appointing a licensed insolvency practitioner. Whilst this makes liquidation more expensive than striking off, the additional cost can be justified, particularly where the company has debts or complex affairs. For example, in a creditors’ voluntary liquidation, the involvement of an insolvency practitioner helps ensure that creditor claims are handled properly and can prevent further legal action against the company (although, in rare cases, creditors may still seek compulsory liquidation).

Ultimately, the appropriate option should be determined not only by cost, but by the company’s financial position and legal obligations.

CHALLENGES AND RISKS

Striking Off:

(a) creditors can object to the strike-off if they are owed money by the company;

(b) HMRC may block the process where taxes remain unpaid; and

(c) directors’ conduct may be investigated, potentially leading to personal liability and/or director disqualification.

Liquidation:

(a) the process can be more costly and time-consuming than striking off;

(b) there may be increased scrutiny from the appointed liquidator, including investigation into the directors’ conduct; and

(c) creditors are formally involved in the process, which may lead to challenges or disputes if concerns arise.

FINAL THOUGHTS

Choosing between striking off and liquidation depends largely on whether your company is solvent and meets the eligibility criteria. Whilst striking off may be quicker and cheaper, liquidation provides a more structured and legally robust process, particularly where liabilities are involved.

If you require advice on closing your company or assistance with any of the processes outlined above, please reach out to us by calling 020 7952 1723, or emailing [email protected].