1. What is a Struck Off Company?
A struck off company refers to a business entity that has been removed from the official Registrar of Companies (RoC) and is no longer legally recognized as a valid business. This can happen due to various reasons, such as failure to file mandatory documents, non-payment of regulatory fees, business inactivity, or legal violations. Being struck off can lead to severe consequences, including loss of legal status, seizure of assets, personal liability for directors, reputational damage, and challenges in reinstatement.
2. How does a company become struck off?
A company may be struck off for several reasons, including:
1. Failure to File Required Documents or Pay Fees
Most jurisdictions require businesses to file annual returns, financial statements, and other regulatory documents. If a company fails to comply, the Registrar of Companies (RoC) may issue a notice. If the company does not take corrective action within the given period, it may be struck off.
2. Ceasing to Carry On Business
If a company has ceased operations and has no assets or liabilities, it may be struck off. In some regions, a formal notice of intention to dissolve must be submitted before the company is struck off.
3. Extended Inactivity
A company that has remained inactive for a long time may be struck off, even if it has not formally ceased operations. The specific time frame for inactivity varies based on jurisdictional regulations.
4. Involvement in Illegal or Fraudulent Activities
If a company is found engaging in illegal or fraudulent activities, authorities may take action to strike it off. This is done to protect the public and prevent further legal violations.
The process for striking off a company varies by jurisdiction, but generally includes issuing a notice, allowing time for corrective action, and proceeding with the removal if no compliance is achieved.
3. What are the consequences of a company being struck off?
The implications of a struck off company can be significant:
1. Loss of Legal Recognition
A struck off company loses its legal status, meaning it can no longer operate, enter contracts, or conduct business transactions.
2. Seizure of Assets
Any assets owned by the company may be seized and liquidated to cover outstanding debts or liabilities.
3. Personal Liability for Directors
In some cases, directors may become personally liable for the company’s debts, especially if they continued operations post-striking off. This is known as lifting the corporate veil.
4. Reputational Damage
A struck off status can harm the company’s credibility, making it difficult to regain trust from investors, customers, and stakeholders.
5. Challenges in Company Restoration
Restoring a struck off company is a complex legal process, requiring regulatory approvals, financial compliance, and legal assistance.
4. Can a struck off company be restored?
In some cases, it might be possible to restore a struck off company, but the process can be complex and may require legal assistance. The specific process for restoring a struck off company will depend on the jurisdiction in which the company was incorporated and the circumstances surrounding the company’s striking off.
In general, the process of restoring a struck off company may involve the following steps:
- Obtain a copy of the order striking off the company and any other relevant documents. This will help to understand the reason for the company being struck off and what needs to be done to restore it.
- File an application to restore the company with the relevant regulatory agency, along with any required supporting documents and fees. The specific requirements for the application will vary depending on the jurisdiction and the circumstances surrounding the striking off.
- Attend a hearing, if required, to present the case for restoring the company. This may involve answering questions about the company’s current status and the steps that have been taken to address any outstanding issues.
- If the application is approved, the company will be restored to the official register of companies and will be legally recognized as a valid business entity once again. The company may be required to pay any outstanding debts or liabilities before it can be restored.
- In some cases, if the company cannot be restored, it may be necessary to dissolve the company and start a new business.
5. What should a director of a struck off company do?
If you are a director of a struck off company, it is important to seek legal advice as soon as possible to understand your rights and obligations. Some specific steps that you may need to take as a director of a struck off company include:
- Determine the reason for the company being struck off. This will help to understand what needs to be done to restore the company if that is possible.
- Contact the relevant regulatory agency to find out what needs to be done to restore the company. This may involve providing the agency with information about the company’s current status and any outstanding issues that need to be resolved.
- Gather the necessary documents. You will likely be required to provide certain documents, such as proof of the company’s debts and liabilities, in order to restore the company. It may also be necessary to provide documents such as financial statements and annual returns to demonstrate that the company is financially stable and has been properly maintaining its records.
- File an application to restore the company. In most cases, you will need to file an application with the relevant regulatory agency to restore the company. This application should include any required supporting documents and fees. The specific requirements for the application will vary depending on the jurisdiction in which the company was incorporated.
- Attend a hearing, if required. In some cases, you may need to attend a hearing to present the case for restoring the company. This may involve answering questions about the company’s current status and the steps that have been taken to address any outstanding issues.
As a director of a struck off company, it is also important to be aware of your potential personal liability for the company’s debts and liabilities. In some cases, directors may be held personally liable for the company’s debts if the company is unable to pay them. This is called lifting the corporate veil. It’s important to seek legal advice to understand your potential personal liability and to take steps to protect your personal assets if necessary.
6. What should a shareholder of a struck off company do?
If you are a shareholder of a struck off company, it is important to seek legal advice as soon as possible to understand your rights and obligations. Some specific steps that you may need to take as a shareholder of a struck off company include:
Shareholders should:
- Determine the cause of striking off.
- Communicate with regulatory authorities.
- Provide proof of shareholding and other required documents.
Work with directors or legal advisors to restore the company.
7. Can a struck off company be used for illegal purposes?
A struck off company may be exploited for illegal activities such as money laundering, tax evasion, or fraud. Criminals may use such companies as shell entities to disguise illicit transactions. However, using a struck off company for illegal purposes is a serious criminal offense, punishable by heavy fines and legal action.
If you suspect a struck off company is being used for illegal activities, report it to the relevant authorities immediately.
Frequently Asked Questions
Q1. What is the difference between striking off and winding up?
Ans: For dead firms or companies with no or very limited liabilities, striking off is the recommended option. Some businesses must wind up their operations simply because they no longer exist. When a company has assets and liabilities, it must be wound up.
Q2. Can a company revive after struck off?
Ans: Struck off refers to the temporary closure of a company in accordance with the requirements of the Companies Act 2013. It is a substitute for winding up a company and allows the company to be revived for ‘twenty years’ from the date of the struck off.
Q3. Does a company struck off affect credit rating?
Ans: Firm liquidation should not affect your personal credit rating unless you are indebted to the bankrupt company, and the liquidator is required to take recovery action against you, such as obtaining a County Court Judgement. This type of action would be recorded on your creditor’s records for about six years.
