If a Limited Company has debts they cannot afford or want to avoid paying, they sometimes go down the route of getting the company ‘struck off’ or ‘dissolved to effectively close the company.
If a Company Director is trying to get their company struck off to avoid paying company debts, it is advisable to exercise extreme caution.
Striking off a company at Companies House
The simplest, cheapest way to close a Limited Company down is to get it struck off (or dissolved) from the Companies House register.
Striking off or dissolving a Limited a company is not as straight forward as it may sound. There is a strict criteria for dissolving a Limited Company and these terms must be met. Such as the company must be solvent and no longer actively trading. Also, the company must have no active legal action on-going against it and be free from enforcement action.
Striking off a company that has Commercial Debts
Insolvent Limited Companies that cannot afford to pay off debts to its creditors cannot utilise the striking off process. All Commercial Debts must be paid in full before a company can be struck off. This also applies to any ongoing legal, commercial debt recovery or insolvency actions.
If an attempt is made by a Company Director to have a company struck off in view of the aforementioned, it is probable that it will be rejected.
Directors could be held personally liable for Company Debts
There have been many examples of where a Director has abused the striking off process and managed to close their business down without full disclosure to Companies House. There have been many instances where this has been done in order to avoid repaying debts that were owed.
When a creditor finds out this has happened, they can apply to have the Company’s entry on the register reinstated. This will bring significant risk for the company’s directors that have attempted to abuse the striking off process.
It will likely lead to their conduct being investigated and could lead to them having a personal liability for any Business debts and face a director disqualification of up to 15 years. If the action is bad enough, it could also lead to a criminal conviction depending on its severity.
Can a dissolved company be chased for unpaid Debts?
If there is a striking off application on-going, this can be rejected by any creditors who are owed money by the company. Any creditors that are owed money can object to the dissolution of the company and the application would be suspended.
Creditors can request the company is reinstated. Once this is done they can then take debt collection and enforcement action to attempt to collect what is owed by the company.
This is a tactic often used by the HMRC to pursue individuals that are attempting to evade payment of tax etc HMRC investigations have been known to occur up to 20 years after a company was dissolved.
When this happens, the conduct of the Director is also likely to be called into question and investigated by the Insolvency Service. If found guilty, the Company Director can be held personally liable for all Business debts, be banned as a director, be fined and possibly face prison for up to 7 years.
Closing down a Business with Unpaid Debts
If a Company Director is looking to close down a Company, it is advisable to do it in a ethical and lawful manner. A Creditors voluntary liquidation is often the safest legitimate option.
An Insolvency practitioner is appointed to take control of the Company’s affairs. They will seek to sell off any assets, stock etc then distribute any raised funds to outstanding creditors. If the Company has little or no assets, then administrative dissolution can be an option at the discretion of the insolvency practitioner.
Taking action to recover unpaid Business Debts
If a Company is unable to pay its creditors due to being owed money, then it is strongly recommended that they use a Professional and Commercial Debt Recovery Agency. If debts are owed to a Company by an individual then a Personal Debt Collection solution offers a suitable option to collect what is owed.