1. What is a Struck Off Company?
Struck off company means that a business entity has been removed from the official Registrar of Companies(RoC) and is no longer legally recognized as a valid business. This can happen for numerous reasons, such as failure to file required documents or pay fees to the relevant regulatory agency, ceasing to carry on business, or being inactive for an extended period of time. Being struck off can have serious consequences for a company, including loss of legal recognition, seizure of assets, potential personal liability for directors, reputation damage, and difficulty restoring the company.
2. How does a company become struck off?
There are numerous reasons why a company may be struck-off, including:
a. Failure to file required documents or pay fees to the relevant regulatory agency: In most jurisdictions, companies must file certain documents, such as annual returns and financial statements, and pay fees to maintain their legal status. If a business fails to do so, it may be struck off. For example, suppose a company fails to file its annual return on time. In that case, the relevant regulatory agency may send a notice to the company giving it an opportunity to file the return and pay any outstanding fees. If the company does not comply within the specified time period, the agency may proceed with striking off the company.
b. Ceasing to carry on business: If a company stops carrying on business and has no assets or liabilities, it may be struck off. In some jurisdictions, a company may be required to file a notice of intention to dissolve with the relevant regulatory agency in order to be struck off.
c. Being inactive for an extended period of time: In some jurisdictions, a company may be struck-off if it has been inactive for an extended period of time, even if it is still carrying on a business. The specific length of time that a company must be inactive before it can be struck off will vary depending on the jurisdiction.
d. Conducting illegal or fraudulent activities: A company may be struck-off if it is found to be conducting illegal or fraudulent activities. In such cases, the relevant regulatory agency may initiate proceedings to strike off the company in order to protect the public and prevent the company from continuing to engage in illegal or fraudulent activities.
The process for striking off a company will vary which will depend on the jurisdiction in which the company was incorporated and the specific circumstances surrounding the striking off. In general, however, the process will involve the relevant regulatory agency issuing a notice to the company, giving it an opportunity to rectify any issues or explain why it should not be struck off. If the issues are not resolved, the agency may proceed with striking off the company.
It is essential for directors and shareholders of a company to be aware of their obligations and to ensure that the company complies with all the relevant laws and regulations. Failing to do so can lead to the company being struck off, which can have serious consequences for the company.
3. What are the consequences of a company being struck off?
There are several consequences of a company being struck-off, including:
a. Loss of legal recognition: A struck off company is no longer legally recognized as a valid business entity and is no longer able to carry out business activities or enter into legal contracts. This can have serious implications for the company’s operations and may make it difficult for the company to continue to do business.
b. Seizure of assets: If a struck off company has any assets, they may be seized and sold off to pay any outstanding debts or liabilities. This can result in a significant financial loss for the company and its shareholders.
c. Personal liability for directors: In some cases, directors of a struck off company may be held personally liable for the company’s debts and liabilities. This is called “lifting the corporate veil.” It is important for directors to understand their potential personal liability and to take steps to protect their personal assets if necessary.
d. Reputation damage: Being struck off can damage the reputation of a company and may make it difficult for the company to regain the trust of customers, suppliers, and other stakeholders. This can have a major effect on the company’s ability to do business and can result in a loss of revenue and profits.
e. Difficulty restoring the company: If a company is struck-off, it can be not easy to restore it. The process for restoring a struck off company can be complex and may require legal assistance. In addition, the company may be required to pay any outstanding debts or liabilities before it can be restored, which can be a significant financial burden.
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 they can be restored.
In such cases, it might 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:
a. 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. In some cases, the company may have been struck-off for failure to file required documents or pay fees to the relevant regulatory agency. In other cases, the company may have been struck-off due to inactivity or ceasing to carry on business. It is necessary to identify the reason for the striking-off in order to determine the steps that need to be taken to restore the company.
b. Contact the relevant regulatory agency: You should contact the agency that struck off the company 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.
c. 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.
d. 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.
e. 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.
In addition, as a director of a struck off company, you should be mindful of your reputation and the reputation of the company. Being associated with a struck off company can damage your reputation and may make it difficult for you to find future employment or business opportunities. Therefore, it is important to take steps to minimize any potential reputational damage and to seek legal advice 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:
- 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: You should contact the agency that struck off the company to find out what needs to be done to restore the company.
- Gather the necessary documents: You may need to provide certain documents, such as proof of your shareholding in the company, in order to restore the company.
7. Can a struck off company be used for illegal purposes?
It is possible that a struck off company could be used for illegal purposes, such as money laundering or tax evasion. In some cases, criminals may attempt to use a struck off company as a “shell” to hide illegal activities or to avoid detection.
However, it is important to keep in mind that using a struck off company for illegal purposes is a serious offense and can result in criminal charges. In addition, attempting to use a struck off company to evade taxes or hide illegal activities can result in significant fines and penalties.
If you have concerns that a struck off company is being used for illegal purposes, it is important to report this to the relevant authorities.
Frequently Asked Questions
Ques: 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.
Ques: 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.
Ques: 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.
