Strike Off vs. Members’ Voluntary Liquidation

A voluntary Strike Off or Members’ Voluntary Liquidation (MVL) can be considered by directors and shareholders for a solvent company which has naturally come to the end of its life, its specific purpose has been met, where the business may be outdated or redundant or the directors/owners are looking to retire and there is nobody to take over the running of the business.

This article explains the differences between a Strike Off and MVL.

What is a Strike Off?

This is the closure of a company without formal insolvency proceedings and can be carried out by the directors with or without the assistance of a licensed Insolvency Practitioner.

A company can be struck off the Register at Companies House where:

• There has been no trade or stock sold in the last 3 months
• The name of the company has not changed in the last 3 months
• The company is not being threatened with liquidation proceedings
• There are no agreements in place with creditors, for example a Company Voluntary Arrangement (CVA)

It is important to note that this process is not an alternative to formal insolvency proceedings where they are appropriate.

A brief overview of the Strike Off process

1. The directors resolve that the company is no longer required and it is appropriate that it is struck off.
2. All interested parties are notified of the company’s intention to apply for striking off as any one of them could object to the application.
3. The directors ensure that all loose ends are dealt with, such as the distribution of the assets and the closure of the company bank account as any remaining assets will automatically pass to the Crown on dissolution (‘Bona Vacantia’).
4. A Form DS01 is signed by the majority of directors and submitted to the Companies House with the relevant fee (£8 for an online application or £10 for a postal application).
5. A copy of the Strike Off application is sent to all parties who may have an interest.
6. Companies House will review the application and if everything is in order the information will be registered and made available on the company’s public record.
7. An acknowledgement is sent to the address on the application and also to the Registered Office of the company, allowing the directors to object should the application be false.
8. The proposed Strike Off is also advertised in the Gazette by Companies House giving any interested party a final chance to object.
9. If no objections are received, the company will be struck off the Register two months after the date of the Notice, with the company formally dissolved on publication of a final Notice in the Gazette.

When would a Strike Off be used?

1. The company has assets of less than £25,000 which can be distributed prior to Strike Off where the dividends benefit from the lower capital gains tax rate.
2. The company has no/minimal assets left on strike off.
3. The company has no creditors who would likely object to the strike off.

Advantages of Strike off

• Cheaper process than MVL (£8 for an online application or £10 for a postal application).

• Quicker process than MVL. Provided no creditor objections, the company dissolved 2 months from the Strike Off application was registered at Companies House.

Disadvantages of Strike Off

• Dissolution will be delayed if any creditor objects to the Strike Off.

• Any remaining assets will automatically pass to the Crown on dissolution (‘Bona Vacantia’).

• If a company has been dissolved, any creditor or other interested party can apply for the company to be restored to the Register and steps taken to place the company into formal insolvency, if necessary. If restored, the company is deemed to have continued in existence as though the strike off and dissolution never took place.

• Directors may be subject to investigation by the Insolvency Service if they are found to have not complied with the rules when applying to strike off a company. The Insolvency Service has powers to investigate dissolved companies.

What is a Members’ Voluntary Liquidation?

This is a formal process that brings a solvent company to a close which is overseen by a licensed Insolvency Practitioner who is appointed Liquidator.

An MVL can be a tax-efficient way for shareholders to extract any surplus funds from a company.

This process is only available for solvent companies.

To reduce the cost of an MVL all accounts held with HM Revenue & Customs (‘HMRC’) should be finalised with all final returns submitted and any liabilities paid. Ideally, all other creditor liabilities should also be settled prior to the commencement of the MVL process otherwise additional statutory interest will be due. It can be the case that some liabilities come to the light after the process has commenced however these can be settled by the appointed Liquidator using company funds held, after seeking the agreement of the members that the liabilities are in fact due.

A brief overview of the Members’ Voluntary Liquidation process

1. Directors resolve the wind up the company and appoint a Liquidator.
2. A statutory Declaration of Solvency detailing the assets and liabilities is signed by the Directors in front of a Notary Public (most solicitors).
3. A shareholder meeting is called where a Liquidator is formally appointed by the shareholders.
4. An initial distribution of assets made by the Liquidator if deemed appropriate with an indemnity sought to cover any unknown liabilities arising in the liquidation.
5. The Liquidator will settle any residual creditor balances from funds held.
6. The Liquidator will deal with all statutory filings, seek tax clearances and wind up the final affairs of the company.
7. Following tax clearance from HMRC – usually within 6-12 months following appointment – a final distribution to shareholders is made and final tax and VAT returns are submitted to HMRC.
8. Following the conclusion of the MVL, a Final Account is submitted to members, the Companies House, and the Accountant in Bankruptcy and the company is formally dissolved 3 months thereafter.

When would a Members’ Voluntary Liquidation be used?

1. The company has assets of £25,000 or more. Distributions from the MVL are treated as capital distributions and benefit from the lower Capital Gains Tax rather than the higher income tax rate which would apply if the company was not in MVL.
2. The nature of the company’s assets is complex.
3. The company has liabilities to be finalised/paid post-liquidation.
4. It would be beneficial for formal HMRC clearance to be obtained.
5. There may be legacy issues where it would be best for the winding up of the company to be handled by a licensed Insolvency Practitioner so that a final deadline for any creditor claims can be issued.
6. The directors wish to have comfort that the winding up is carried out properly.

Advantages of Members’ Voluntary Liquidation

• Tax efficient.
• Process overseen by an Insolvency Practitioner.
• Quick initial distribution to shareholders.

Disadvantages of Members’ Voluntary Liquidation

• Longer process than Strike Off (minimum 6-12 months based on straightforward asset, liability and tax position).
• More expensive process than Strike Off as the Liquidator’s fee and outlays need to be met.

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