There are two primary options to wind up corporate entities:
- Voluntary liquidation
- Strike Off
Under the Companies Law, voluntary liquidation is a formal process approved by shareholders that involves, among other things, appointing liquidators, calling for claims and holding of the final meeting of the company. This process is slightly more expensive than Strike Off, but winding up ensures that the affairs are finalized and the company will not be restored.
Previously, the date of dissolution was less important because once the final meeting was held before the end of the year, the entity was able to achieve efficiencies and savings.
Under section 127 and 151 of the Companies Law (2020 revision) (as amended) the liquidator will file the final return with the registrar of companies within seven days of the final meeting. The registrar of companies will then register the return within three days of receipt. Upon expiration of three months from the date of registration, the company will be deemed to be dissolved.
The Strike Off method is best suited for a company that is inactive with no assets, liabilities or creditors. Under section 156 of the Companies Law, a company not operating may be struck off as follows:
- Removal of a defunct company
- A request on behalf of the company
If the focus of your attention is a CIMA-regulated entity, then there will be extra nuances involved, including a change of status and audit waivers.
The Benefit of Liquidating the Company and Not Strike Off
A Strike Off is suitable for companies that have never traded or have not traded for a long period of time because any member or creditor can apply to have the company restored to the registrar, particularly where there are any dissatisfied stakeholders, including creditors or members of the company.
Following an order for the restoration of a company to the registrar, the company shall be deemed to have continued in existence as if its name had not been struck off the register. The liability, if any, of any director, manager, officer or member of the company, continues and may be enforced as if the company had not been dissolved.
In contrast, the ability to restore the company is not available to creditors or members after the conclusion of a voluntary liquidation, so the advantage of placing the company into voluntary liquidation is that it removes the spectre of restoration.
The main factors to consider in determining whether to place a company in voluntary liquidation or strike off are the nature and extent of the assets and liabilities, and whether or not there is a risk that any members or creditors will seek to restore the company in the future.