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rajibraj 11 January 2024

Liquidation vs. Strike off: Understanding the Differences

When a company reaches the end of its lifecycle or faces financial difficulties, business owners might consider closing down operations. Two primary routes for closing a company in the UK are liquidation and strike off. Understanding the distinctions between these options is crucial to make an informed decision. Let's delve into the specifics of each process:

Liquidation

Definition: Liquidation, also known as winding up, is a formal process to close a company by selling its assets to pay off creditors and distribute remaining funds to shareholders. There are two types of liquidation:

Creditors' Voluntary Liquidation (CVL): Initiated by company directors when the business is insolvent, and they decide to cease operations.

Members' Voluntary Liquidation (MVL): Chosen when a solvent company decides to close, distributing assets to shareholders after settling debts.

Key Aspects:

Appointing a Liquidator: : An insolvency practitioner is appointed to oversee the liquidation process.

Creditors' Meeting: In CVL, a meeting is held with creditors to agree on the liquidation process and appoint a liquidator.

Creditors' Claims: Creditors submit claims, and assets are sold to repay debts according to a statutory order of priority.

End of Company Existence: The Company ceases to exist once the process is complete.

Choosing between liquidation and strike off depends on the company's financial status and circumstances. Seek advice from insolvency practitioners or legal advisors to determine the most suitable option. Understanding the implications and obligations of each process is vital to ensure a smooth closure and compliance with legal requirements.

Strike Off:

Definition: Strike off, also known as dissolution, is a simpler and less formal process suitable for solvent companies wishing to close voluntarily. It involves removing the company from the Companies House register.

Key Aspects:

Eligibility: The company must not be actively trading or have any outstanding liabilities.

Director's Declaration: Company directors must declare their intent to strike off.

Filing Form DS01: Submitting Form DS01 to Companies House to apply for striking off.

Publication Period: Companies House publishes a notice to allow objections within a specified period.

Dissolution: If no objections arise, Companies House strikes off the company, and it ceases to exist.

Comparison:

Eligibility: Liquidation suits insolvent companies, while strike off is for solvent entities.

Non-Business Calls: Liquidation involves a formal process and handling creditors, whereas strike off is relatively straightforward.

Creditor Settlement: Liquidation ensures a structured settlement of debts, whereas strike off requires all liabilities to be settled before applying.

End Result: Liquidation results in the closure of the company, whereas strike off removes it from the register, but it may be restored under certain circumstances.

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Conclusion:

This blog aims to provide insights into the differences between liquidation and strike off, offering an overview of each process, key aspects, and considerations. It emphasizes the importance of seeking professional advice to make informed decisions based on the company's financial position and requirements.

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