IN SHORT – NO
What is a strike off?
Dissolving a company, known as a strike off, can be a simple, cost effective way to close down a solvent or insolvent company with no assets. Technically a company can be struck off if it has creditors, but only with their consent. As part of the strike off process the board needs to tell the following “interested parties” about the intention to strike off.
- Managers or trustees of any employment pension fund
- Any directors who didn’t sign the application form
The process is therefore already there to prevent a strike off as the lending bank of a bounce back loan, when advised will object to the strike off and prevent the process continuing.
Not content to rely on the integrity of directors, the government are bringing in, in September 2021, new retrospective legislation “The Ratings (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill”.
The Bill will allow the Insolvency Service to specifically target and pursue directors who close their companies by dissolving their businesses when they have outstanding debts. The powers will be retrospective to investigate directors of struck off companies and how they acted in the circumstances leading up to the dissolution. This will apply to companies already struck off.
Directors seeking to pursue this route now can expect to receive an “objection to company strike off notice”. The Department of Business, Emerging and Industrial Strategy (“BEIS”) has confirmed that it is already filing objections where a strike off notice has been issued against a company which has an outstanding bounce back loan. The possible consequences are disqualification.
What are the alternatives?
The alternatives are compulsory liquidation or creditors voluntary liquidation remain unchanged. The issue is that both processes have a cost and if the company has no assets, and the directors are unable/unwilling to meet this cost, then both options are not available. It is unlikely that the lending bank of the bounce back loan will expend funds to issue a winding up petition when its core debt is 100% guaranteed by the government. In fact the lending banks have agreed with the British Business Bank that they will not instigate Insolvency proceedings. The company will therefore become a zombie company, dormant, insolvent, non trading but unable to be wound up.
So whats the solution?
For once there isn’t really one for now. What has changed is that pre pandemic there would usually be an HMRC debt outstanding and eventually HMRC would as part of its processes, issue a compulsory winding up petition. Where there is only a bounce back loan I repeat, the lending bank are unlikely to want to spend money issuing winding up petitions. In addition where accounts weren’t filed Companies House would initiate strike off proceedings. Where there is a bounce back loan Companies House have agreed to no longer do this. The only practical advice we can give is to write to the Bank explaining that the company has ceased to trade, has no assets to enable it to meet the costs of either compulsory or voluntary liquidation, and the existence of the bounce back loan prevents a strike off. You could invite the bank to issue a winding up petition which would not be opposed. Any other creditors could be written to on similar lines and the reality is that only HMRC are likely to eventually issue a winding up petition, however this could be months or even years away.
And the Future?
The strike off process was partially designed to prevent a build up of dormant companies at Companies House. The BEIS are clearly wishing to avoid strike offs being used as a process to avoid repayment of bounce back loans without any investigation into directors conduct. However at some stage down the line there will need to be a rethink of the current position to enable dead companies to be buried.
If you would like to discuss any of the above or have any queries, please do contact one of our Directors:
Paul Ellison – 07967471211
Rob Keyes – 07500933022
Gareth Roberts – 07979706392
David Taylor – 07855231103