Termination of a Solvent Business

Introduction

A company does not have to fail in order to come to an end. A **solvent** company — one that can pay its debts — may be brought to an end in an orderly way once its owners decide it has served its purpose. This chapter examines the **two principal routes** for terminating a solvent company: **striking the company off the register** (the simplest and cheapest route) and **members' voluntary liquidation** ('MVL'). It also distinguishes these solvent routes from the **insolvent** routes — **compulsory liquidation** and **creditors' voluntary liquidation** — which arise where the company is in financial difficulty. You must master the **eligibility criteria**, the **procedure**, the **forms** to be filed and the **consequences of non-compliance**, including the criminal liability of directors who swear a **statutory declaration of solvency** without reasonable grounds.

Assessment focus

For the SQE1 FLK1 assessment, Business Law and Practice requires you to advise on how a **solvent business may be brought to an end**. You should be able to identify, on a set of client facts, whether the company **qualifies to be struck off** the register and, if not, whether **members' voluntary liquidation** is the appropriate route. You must know the **statutory declaration of solvency** requirement under **s. 89 Insolvency Act 1986** and the **criminal consequences** (fine or imprisonment) where directors make that declaration without reasonable grounds (**s. 89(4)**). You should also be able to **distinguish the solvent routes from the insolvent routes** — compulsory liquidation (winding up by the court on a creditor's petition under **s. 124 IA 1986**, on the ground that the company is unable to pay its debts under **s. 122(1)(f)**, the test being defined in **s. 123**) and creditors' voluntary liquidation. Questions are single best answer questions (SBAQs) set in **realistic client-based scenarios**; you will be expected to **apply** these rules to the facts. This is a closed-book assessment — be able to recall the criteria, forms and statutory references from memory.

Study tips

1) Memorise the **four striking-off criteria**: (i) **no trading or sale of stock in the last 3 months**; (ii) **no change of name in the last 3 months**; (iii) **not threatened with liquidation**; (iv) **no agreements with creditors** (e.g. a CVA). 2) Remember the **form**: striking off is by **form DS01** to Companies House, signed by a **majority of the directors**. 3) For **MVL**, learn the **two resolutions**: a **special resolution** to wind up + an **ordinary resolution** to appoint a liquidator. 4) Learn **s. 89 IA 1986**: directors must swear a **statutory declaration of solvency**; making it without reasonable grounds risks **fine or imprisonment** (**s. 89(4)**). 5) Keep the **two notices in the Gazette** distinct — first notice (request to strike off), then **strike-off after 2 months** if no objection, followed by a **second notice** confirming the company no longer exists. 6) After MVL, the company is **dissolved 3 months** after the final return is filed with the Registrar. 7) Be ready to spot when a **solvent** route is wrong because the company is in fact **insolvent** — i.e. unable to pay its debts within **s. 123 IA 1986** (then compulsory liquidation on a creditor's petition, or creditors' voluntary liquidation, applies).