This helpsheet has been issued by ICAEW’s Technical Advisory Service to help ICAEW members consider the options and impacts of striking off a company in terms of accounting, audit and other considerations.

Members may also wish to refer to the following related guidance:

• Private company reduction of share capital

There are various routes to formal liquidation of a company, including voluntary arrangements, receivership or administration.

In some circumstances a company can simply be “struck off” the register without undergoing formal liquidation procedures. Strike off can be initiated by the directors of the company, or the Registrar of Companies (where there has been a failure to comply with statutory filing requirements). Strike off is not an alternative to formal liquidation procedures and is only appropriate where (among other things) the company is solvent, there are no outstanding legal actions, and it hasn’t traded for at least the last three months.

For more details of when strike off may be appropriate please review the guidance on the gov.uk page Strike off, dissolution and restoration.

Companies Act 2006 sets out the requirements for preparing, auditing and filing financial statements with the Registrar and the distribution of those financial statements to members of the company. These requirements are not changed by a company commencing strike off procedures.

If the formal strike off is finalised before the accounts filing deadline for a set of financial statements, whilst the legal requirement for financial statements to be prepared and filed remains, our expectation is that Companies House would not chase for the financial statements if not filed before strike-off, because there is no longer a company to file these financial statements against.

There may however be a need to supply financial information to HMRC to support final tax returns. In addition, members (and the other parties listed in section 412 of Companies Act 2006) are still entitled to receive a copy of the financial statements (including the audit report where applicable). As such, whilst the Registrar may not expect to receive financial statements, the company should consider the obligations it has to other parties when concluding whether audited financial statements need to be prepared.

If a company is pursuing strike off, but this will not be completed prior to the filing deadline for the financial statements, it may be beneficial for the company to extend its year end. Any extension would be done in line with section 392 of Companies Act 2006 and the directors would need to consider whether an extension is possible. For instance, the company cannot extend their year-end if they have extended within the prior 5 years, if the period for filing accounts has already expired, and the period cannot be extended beyond 18 months.

Where the company pursuing strike off is required to have an audit, the considerations detailed above regarding the need for accounts to be filed are unchanged.

Where directors are aware of the intention to strike the company off, they may have already notified auditors that they will not be reappointed. Auditors are encouraged to refer to our helpsheet on auditor resignation: Auditor resignation – Auditor responsibilities.

Entity seeking strike off is a parent

Where a parent is seeking strike off, it would need to look to dispose of any subsidiaries prior to the strike off. This could be through sale or distribution (subject to availability of sufficient distributable reserves).

Entity seeking strike off is a subsidiary

Where a subsidiary is to be struck off, and the group it is a member of prepare group accounts, there may be a knock-on impact to those consolidated accounts.

The specific circumstances would need to be considered in each case, but typically a parent would have maintained control over the subsidiary up until the company was dissolved so there would be an expectation that the subsidiary would be included in the group accounts. Directors within the group may need to take steps to secure the information required for the subsidiary for the purposes of including those results in the consolidated financial statements and potentially for audit purposes for the group.

In many cases the subsidiary will have minimal net assets and no activity so, in line with section 405 of Companies Act 2006 that subsidiary may be able to be exclude from the group accounts on the basis that it is not material to the group.

Members may wish to refer to our helpsheet on when a subsidiary may be excluded from group accounts.

What impact does strike off have on the director’s assessment of going concern?

In accordance with FRS 102 section 3.8, a company is a going concern unless management either intends to liquidate the entity or to cease trading or has no realistic alternative but to do so. In making this assessment, the directors must take into account all available information about the future, which is at least, but not limited to, 12 months from the date when the financial statements are issued.

As such, if management are pursuing strike off, and the ability to complete the strike off is within the control of management (even if timing is uncertain), then a basis other than going concern would usually be adopted in the financial statements.

Further guidance on preparing accounts under a basis other than going concern is available in Going concern considerations – a guide for FRS 102 preparers.

Is strike off the correct route for the company?

Directors should consider whether strike off is the most appropriate route for the company. It is not an alternative to formal liquidation procedures. If the company has any unpaid creditors, they are likely to object to the strike off and, even if the company has been dissolved, creditors could apply to have the company restored to the register.

If there is any doubt, directors of the company would be best to consult with an Insolvency Practitioner.

Distributions to members

When following the process to strike a company off, the usual rules around distribution of assets apply, so any assets representing non-distributable reserves (eg share capital) cannot legally be distributed.

To access non-distributable reserves, directors would need to undertake a reduction in share capital prior to a distribution being made.
More information on this process can be found on our helpsheet Private company reduction of share capital.

When a company is dissolved, any assets that remain are deemed to belong to the Crown, the Duchy of Lancaster or the Duchy of Cornwall (deemed to be “bona vacantia”) under s1012 of Companies Act 2006. If the amounts are small, it is questionable whether any action would be taken to seize these, but Directors should be aware of the risks.

Given the availability of the process to reduce capital by way of solvency statement many companies are likely to take this approach, particularly if there are material assets locked in the company. This removes the issues around assets being deemed “bona vacantia”.

ICAEW members, affiliates, ICAEW students and staff in eligible firms with member firm access can discuss their specific situation with the Ethics Advisory Service on +44 (0)1908 248 250 or via webchat.