Strike off vs liquidation
The difference between strike off and liquidation for distressed companies.
Short answer
Strike off and liquidation are not the same thing. Strike off is usually for companies that are no longer needed and do not require a formal insolvency process, while liquidation is the formal route used to wind up a company, including insolvent companies.
Plain-English explanation
Directors often confuse strike off with liquidation because both can lead to a company being removed from the register. But the route matters.
Strike off is generally used where a company is no longer trading and there is no need for a formal insolvency process. It is not the proper alternative to formal insolvency where the company cannot pay its debts.
Liquidation is the formal winding-up process. For insolvent companies, that usually means either:
- Creditors Voluntary Liquidation (CVL), where directors act first
- compulsory liquidation, where creditors force the issue
For a distressed company, choosing the wrong route can create serious problems.
Why this matters for directors
This matters because directors sometimes think strike off is a cheaper or easier way to deal with an insolvent company.
The risks include:
- creditor objections
- restoration of the company to the register
- scrutiny of director conduct
- greater personal risk if the company was insolvent and the wrong route was used
Where the company is insolvent, liquidation is usually the relevant route, not strike off.
What to check now
Directors should review:
- whether the company can pay its debts in full and on time
- whether creditors are unpaid or likely to object
- whether any formal insolvency option is required
- whether closure is voluntary or already being forced by creditors
- whether professional advice is needed before filing anything
What usually happens next
Usually one of these applies:
-
Strike off remains possible
The company is genuinely inactive and not using strike off as a substitute for insolvency. -
Voluntary liquidation is chosen
Directors begin an orderly insolvency closure process. -
Compulsory action follows
Creditors escalate and the company loses control of the route.
The more obvious the insolvency, the less suitable strike off becomes.