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Proposed changes to limited company strike-off from Companies Register

In March 2018, the Department for Business, Energy & Industrial Strategy (BEIS) published a consultation document on insolvency and corporate governance. Among other proposals, it is looking into providing greater powers of investigation into the conduct of directors of dissolved companies following strike-off.

Strike off is the process by which a company is removed from the register at Companies House.  It ceases to exist as a legal entity and any assets it still owns at the date of dissolution go to the Crown as “bona vacantia” (property with no legal owner).

Strike off should not be used as a way of avoiding paying creditors – it generally doesn’t work, since creditors can object to the strike off, and directors are at risk of being seen to be in breach of their fiduciary duties, which can have serious consequences.

What is being proposed?

At present, the Secretary of State has two investigative powers: the power to investigate live companies under the Companies Act 2006 and the power to investigate the conduct of directors of insolvent companies under the Company Director Disqualification Act 1986.

The current legislative framework does not, however, allow for the investigation of the conduct of directors whose companies have simply been dissolved, either via a voluntary or a compulsory striking off application.  The only course of action currently would be to restore the company to the register first and petition to wind it up – which is a costly process.

The Government is therefore considering whether the Secretary of State (acting via the Insolvency Service) should have the power to investigate the conduct of directors of companies which have been dissolved, and to take action against former directors who are found to have acted in breach of their legal obligations. In particular, the areas for further investigation by the Secretary of State would be to:

  1. Require any person to provide such information as may be reasonably requested to allow the Insolvency Service to investigate the conduct and actions of former directors of a dissolved company;
  2. Seek an order disqualifying a former director from being a director of any other company;
  3. Seek an order that the former director financially compensates creditor(s), where the director’s actions caused identifiable losses; and
  4. Seek a prosecution where there is evidence of criminal conduct.

Summary

Extending the powers of the Insolvency Service to take action against former directors of a dissolved company is aimed at ending the abuse of the dissolution process, as a means to avoid dealing properly with insolvent situations.

With over 400,000 company dissolutions a year, the Insolvency Service will target appropriate cases, without imposing further restrictions for directors who legitimately want to dissolve their company.

The new proposals will complement the existing powers to investigate and may be triggered when a complaint is received by the public, a creditor, Government Department or in connection with an existing live investigation.

About the Author

Robin Tarling

Robin Tarling is Managing Director at Bridgewood and plays a leading role in advising clients in insolvency situations.

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