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What is the difference between strike-off and company liquidation?

Strike-off and company liquidation are both ways to close down a company, but strike-off is only suitable for solvent businesses. Liquidation, on the other hand, can be used for solvent and insolvent companies.

Voluntary strike-off, also known as dissolution, involves closing down a company yourself and striking it off the register at Companies House. Company liquidation is a formal process that must be conducted by a licensed insolvency practitioner (IP).

Members’ Voluntary Liquidation (MVL) and Creditors’ Voluntary Liquidation (CVL) offer official routes to closure for solvent and insolvent businesses respectively. So what are the differences between strike-off and liquidation in more detail, and how do you know which process to follow?

Let’s look first at solvent companies.

Difference between strike-off and Members’ Voluntary Liquidation

Who closes the business?

If you choose to strike off your company you and other directors are solely responsible for carrying out the procedure and making sure you fulfil all the legal requirements, such as informing creditors of your intentions.

Conversely, an MVL involves appointing a licensed insolvency practitioner to administer the process and make the distributions once it’s complete. This provides reassurance that all the statutory requirements have been met.

Cost

Company strike-off involves just a small administrative fee and offers an inexpensive option for business closure. Whether this is the best way to close a company depends on the complexity of its affairs, however, and the level of retained profits.

Members’ Voluntary Liquidation is an official process and attracts professional fees, so is more expensive than striking off. For companies with £25,000 or more of retained profits, it’s a highly tax-efficient route as distributions are taxed as capital rather than income.

Complex affairs

If your business affairs are simple, company dissolution offers a straightforward and inexpensive way to close down. If not, it’s worthwhile seeking guidance from a business closure expert before going ahead with dissolution, as there may be tax advantages to entering solvent liquidation.

MVL is typically the favoured route for closing a company whose affairs are not straightforward. The company might own expensive assets, for example, or have complex tax issues.

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Difference between strike-off and Creditors’ Voluntary Liquidation

Solvency

If there’s no question that the company is solvent, dissolution offers a cost-effective way to close down. It’s vital to be sure that this is the case, however, as strike-off is only available for solvent businesses. Trying to close an insolvent company in this way will be met with formal objections from creditors.

Creditors’ Voluntary Liquidation is the only safe way to close an insolvent company and offers several key benefits for company directors. The main benefit is being able to comply with their legal duties as directors – failing to do so can lead to severe repercussions, including personal liability.

Conducting the process

Strike-off is the sole responsibility of the director(s) who initiates it, and there’s no official involvement. If you choose to strike off your company you carry out the entire process yourself, including preparing the company beforehand and submitting the DS01 form to Companies House.

Although directors can initiate a CVL, they must appoint a licensed insolvency practitioner to administer it. This is because it’s a formal route to closure that involves the realisation of assets and distributions to creditors.

Director redundancy

Some directors may attempt to strike off their company when it’s insolvent, perhaps not realising the implications, or not being fully aware of their business’s financial position. This course of action means they can’t claim director redundancy pay.

Entering voluntary insolvent liquidation enables eligible directors to make a claim for redundancy, which could result in a significant payout. Eligibility is dependent on certain factors, including working under an employment contract for a minimum of two years.

If you’d like more information on the differences between strike-off and company liquidation, or guidance tailored to your own company, please get in touch with one of our team. Company Closure offers free, same-day consultations and can quickly establish your best course of action.

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Beware of the risks of unregulated advisers – only licensed insolvency practitioners can handle insolvency appointments and closure procedures from beginning to end. In contrast, unlicensed insolvency advisers will pass your enquiry onto a third party and charge a premium for doing so. Contact our licensed, specialist team today for FREE.

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