What Is The Difference Between Voluntary Strike Off And Liquidation?
Fast Liquidation Fact
The difference between voluntary strike off and liquidation is that a director can apply and oversee the process of a voluntary strike off themselves to close down a company, whereas liquidation requires an independent liquidator to wind up the company, usually at the request of the company directors.
What Is A Voluntary Strike Off?
A voluntary strike off (also called a dissolution) is the process of closing a company that is no longer trading. It’s a relatively simple and low-cost method.
To apply, directors must complete and submit Form DS01 to Companies House, pay a small fee (presently £33 for an online application) and notify all relevant parties such as HMRC, employees, directors, shareholders and creditors.
Restrictions On A Voluntary Strike Off
There are various restrictions that apply to the use of the voluntary strike off procedure:
- The company must not have traded or sold assets in the last 3 months.
- No changed its name in the last 3 months.
- Not threatened with liquidation.
- Not entered into formal agreements with creditors, such as a company voluntary arrangement.
Voluntary Strike Off Procedure
A copy of the DS01 form must be sent to the relevant parties within 7 days to give them an opportunity to object. If no objections are raised, Companies House will remove the company from the register, and it will be dissolved.
Whilst it is possible to strike off a company that is insolvent, the right of creditors to object means that it is often unsuitable as a procedure to close a company with debts.
What Is Liquidation?
Liquidation is a formal insolvency procedure set out in the Insolvency Act 1986, often used when a company cannot pay its debts and needs to be wound up. There are several types of liquidation, but the most common for insolvent companies is a creditors voluntary liquidation.
Insolvent Companies
In a creditors voluntary liquidation, a licensed insolvency practitioner is appointed as the liquidator. Their job is to realise the assets with a view to making a distribution to creditors if sufficient funds are realised after costs of liquidation have been paid. The company, once wound up by the liquidator, can then be dissolved.
Liquidation is more expensive than voluntary strike off because a liquidator needs to be paid.
If there are insufficient assets available to pay creditors in full (as is commonplace), they will go unpaid, except if a director has provided a personal guarantee.
Solvent Companies
Members voluntary liquidation is a liquidation procedure available for solvent companies, often used for tax efficient distributions to the shareholders.
The distributions by the liquidator can be treated as capital and not income, which may provide a tax advantage.