UK: Voluntary Liquidations vs Strike-offs
Deciding between a liquidation or a strike-off is part of the company wind-down process. Learn the benefits and downsides of either option.
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Reaching the end of an entity’s commercial life is a normal and necessary part of the business cycle and requires thoughtful planning and execution. Once a decision has been made to cease operations, the next step is to determine the most appropriate and efficient approach to winding up and dissolving the entity.
The two options for the dissolution of a solvent entity are a strike off or a members’ voluntary liquidation. The key question that arises regarding the management of this process is which method of dissolution is most appropriate.
A strike-off is a simple solution, offering minimal paperwork and a lessened administrative burden. A members’ voluntary liquidation is a more involved process designed to provide finality, and requiring the appointment of a third-party liquidator who becomes responsible for the entity and navigates the wind-down process.
Key Differences Between Strike-offs and Voluntary Liquidations
A strike-off is the most straightforward dissolution option, and is completed by filing a strike off request with Companies House, the official UK agency that incorporates and dissolves limited companies and registers company information. After the initial filing, Companies House will publish notice of the strike-off and will give an effective date for the strike-off to take place.
A strike-off may be the appropriate choice for an entity that is dormant or has not traded for some time, and where directors are assured that there are no unpaid creditors or statutory matters that have not yet been addressed.
Improperly striking off a company can expose directors to personal liability and potential enforcement action, especially situations in which debts or other obligations have been overlooked. The company may also be restored to the register, in which case the directors’ statutory duties and potential liabilities would revive as if the dissolution had never occurred.
A members’ voluntary liquidation is a more involved statutory process that provides greater certainty for an entity’s dissolution, with a detailed set of steps to identify any creditors and liabilities and, if applicable, ensure that they are paid out in full.
Opting for a members’ voluntary liquidation benefits all stakeholders, including its members and creditors, by providing a structured, transparent route to winding down. The process ensures the orderly distribution of remaining assets, maximises returns and delivers legal finality, thereby helping directors mitigate personal risk.
The liquidator must be a third-party licensed insolvency practitioner. On the appointment, the powers of the directors and officers cease, and the appointed liquidator(s) take active control of the entity, attending to the statutory requirements of the liquidation process including matters such as corresponding with the entity’s service providers, publishing notice of the liquidation, corresponding with tax advisers, and taking steps to ensure all obligations have been met with His Majesty’s Revenue and Customs (“HMRC”).
The members’ voluntary liquidations process is designed to ensure the entity does not have unmet responsibilities or obligations before the liquidation is concluded and the company is dissolved.
Directors should be aware that distributions made during a members’ voluntary liquidation are subject to different tax treatment; most notably, they are typically treated as capital rather than income. Tailored tax advice should be sought to fully understand the implications before deciding on the most appropriate method of dissolution.
How the Maples Group Can Assist with UK Voluntary Liquidations and Strike-offs
The Maples Group is a market leader across fiduciary, fund administration, regulatory compliance, and legal services. Clients of the Maples Group benefit from our One Group philosophy with access to multiple service teams under one roof, which allows for effective support of our clients, regardless of how their business evolves.
We offer an efficient and cost-effective liquidation service, using our expertise to navigate the complexities of the process and ease the burden to clients. We work with closely with directors to understand the company’s position, shape an appropriate liquidation strategy, and prepare the necessary documents. Once the process is underway, we provide updates on the progress of the liquidation and any developments as they arise.
A members’ voluntary liquidation is a comprehensive process and helps directors ensures their obligations are met by way of delegating the respective responsibilities to a third-party entrusted with overseeing the end of the company’s life cycle.
The Liquidations team comprises leading experts in local insolvency and liquidations laws and regulations.
Based in London, the UK team leverages the strength and depth of the Maples Group’s global liquidations practice, which is recognised for its established reputation and leadership in the field.
Liquidations must be carried out by a licensed insolvency practitioner. MaplesFS UK is regulated by the Institute of Chartered Accountants for England and Wales.
For legal and regulatory disclosures, please visit maples.com/legal-notices.