Company Strike Off Suspended? Find out what to do NOW!

Strike Off Application Suspended

Company strike off suspended? trying to strike off company with bounce back loan outstanding? Directors are in the aftermath of the pandemic and waking up to the consequences of taking out BBLs and seeing applications for strike off action suspended. Whilst the BBL Scheme no doubt helped businesses survive, many directors are now left with:

·        a BBL their insolvent company is unable to afford to repay, and/or

·        an overdrawn Directors Loan Account (“DLA”)

Directors are personally liable to repay their DLA’s. DLA balances may have increased due to funds from BBL loans being drawn. Many directors have processed withdrawals as dividends not realising they may have unwittingly made illegal distributions for which they could be personally liable. Note that this situation could potentially have been avoided if withdrawals had been processed as wages through the company’s payroll scheme.

This has left many directors of small businesses in a quandary as to what to do with their insolvent companies and how to repay their overdrawn DLAs.

Table of Contents

Company Strike Off Suspended – What Are Your Options?

Where there is no prospect of trading out of the situation, debts being repaid, and no other source of funding available, directors should seek advice from a qualified Insolvency Practitioner. In these circumstances the options will broadly be as follows:

1.   Doing Nothing

The Government’s stance regarding the collection of BBLs has hardened; banks have become more aggressive in their collection procedures.

HMRC are now making Section 455 assessments on overdrawn DLA’s resulting in a 32.5% corporation tax charge to the company. Interest is also charged to the director (currently at 3% pa) on their DLA as a benefit in kind.

If the company is insolvent and the position of creditors becomes worse, there is a risk of wrongful trading with directors becoming personally liable for any losses and a risk of being disqualified from acting as a director for up to 15 years.

2.   Is Strike Off or Dissolution the Answer?

Definitely not! A company with debts cannot be struck off without the consent of creditors. There is currently a blanket rejection to all strike off applications where a BBL is outstanding.

Further, the Government introduced new legislation in December 2021 which enables the Insolvency Service to investigate retrospectively, inter alia, directors who dissolved companies in order to leave the BBL Scheme behind. Directors are liable to criminal prosecution and are being disqualified from acting as directors and made personally liable to repay debts.

Any companies that have been dissolved and slipped through the net could easily find themselves being restored to the register with the Insolvency Service taking the above action against them for recovery of funds.

3.   Liquidation

Often, the most appropriate course of action is for the company to be placed into insolvent liquidation.

This can be a compulsorily winding up by the Court which is usually instigated by one or more creditors. In this instance, the Official Receiver would take control of the matter.

However, many directors prefer a Creditors’ Voluntary Liquidation (CVL) which has the following advantages:

Directors have more control

Directors can take control of the process by choosing when to enter liquidation. They can also appoint their own choice of liquidator.

Debts written off

All unpaid debts are written off at the end of a Creditors’ Voluntary Liquidation, which means creditor pressure stops and directors can typically move on to other ventures without the burden of debt (subject to resolving any personal guarantees or DLA balances).

Complying with Directors Duties

Directors’ legal duties and obligations change when a company becomes insolvent. They must protect the position of creditors and ensure the situation doesn’t worsen and must not wrongfully trade. Entering into CVL addresses these issues and can limit creditor losses as well as limit personal liability and protect their own reputational damage.

The business is closed down efficiently

CVL is a formal process and must be administered by a licensed insolvency practitioner. This means the business is closed down in an orderly manner according to UK insolvency laws, and all statutory regulations are met.

Possible Director Redundancy Claims

Directors can, subject to certain criteria, claim redundancy pay on the liquidation of their company. If a director has worked as an employee for the company for at least two years, received a salary under PAYE, and worked a minimum of 16 hours per week in a practical rather than an advisory role, they may be able to claim the same statutory entitlements as a member of staff.

However, note that the Redundancy Payments Office will not pay a director redundancy where there is an outstanding DLA. Despite this, it could be in a director’s interest to process a redundancy claim so that it can be credited against their DLA balance thus reducing the amount owed to the company.

What Happens to my Director’s Loan Account?

It is important that transactions involving DLA’s are written up correctly in the company’s books and records prior to any liquidation. This may include any previously paid illegal distributions (ie dividends paid out of non-distributable reserves), DLA’s written off etc.

As stated above, many directors’ DLA balances have arisen following drawdown of BBL funds to fund their reasonable living expenses. They were unable to take this as dividend income as no distributable profits were available or earned during lockdown.

Conversely, a DLA may need to be credited in respect of any bona fide business expenses the director can evidence they have paid from their own personal resources (eg, car mileage etc).

Directors will need to make arrangements with the duly appointed liquidator to repay any sums owed to the company. Note that a DLA balance could be further reduced by the following:

•      a successful redundancy claim

•      If the director pays the initial Statement of Affairs fee from their own personal resources (ie not from funds belonging to the company).

Unable to Pay Director’s Loan Account in Full to Liquidator?

Directors need to negotiate with the liquidator concerning any remaining balance owing on their DLA following payment of the above. This could involve looking into their current personal finances to see what they can afford to pay and/or whether they can re-mortgage to raise funds. The liquidator may need to consult with creditors directly as to what action to take (if any) if it transpires the director is unable to repay the DLA in full; the liquidator can take legal action against the director or even make him bankrupt. It may therefore be appropriate for the director to seek separate personal insolvency advice.

In the event that any element of a DLA is written off, the amount of loan written off will have to be included in the director’s self-assessment tax return on a specific box on the ‘additional information’ pages. For income tax purposes the amount is treated as dividend with the usual tax credit.

If a DLA is repaid in full then the company would be able to reclaim a credit for the corporation tax assessed under section 455. This can be set off against any taxes owed by the company so no refund would be received and the tax effect is often nil.

Company strike off suspended? – Is it time to reassess the way forward?

Striking off your company comes with certain benefits, but it is only applicable to firms that fulfil particular requirements to close. If you don’t meet these criteria, it does not imply that the firm cannot be closed. It simply indicates that you should consider seeking another approach to closing the business, such as liquidation.

This is when a licensed insolvency practitioner takes over the closing of your firm and manages any assets and past-due obligations. If your firm is insolvent, liquidation rather than dissolution is usually the best approach to go for company closure.

For free confidential advice contact Company Doctor on 0800 169 1536 or visit us at

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