Q: I have received a 10-week warning letter from the Companies Registration Office for a company I act as a director for. The company stopped trading during COVID and will not recommence trading. There are 3 annual returns outstanding. Do I have to do anything or can I just let the CRO strike off the company?
A: This has been the most common question we have been asked since the CRO issued enforcement warning letters at the end of July 2023.
We wrote last year about what options a company has if it has missed its filing deadline and wants to go to the District Court to seek an extension of time to file the outstanding annual returns. Click here to read the article
If the directors want to keep the company live on the Register, the company will have to act quickly to avoid being struck off the Register of Companies.
To do this the company must either:-
- File the outstanding annual returns, (audited) financial statements and pay the late filing penalties or
- Apply to the District Court for an extension of time to file.
If a company has ceased to trade then it should:-
- Apply for voluntary strike off
We have set out the criteria for applying for voluntary strike off in a previous article click here
The company must be up to date with its filing requirements before it is in a position to apply for voluntary strike off. So all the late annual returns and financial statements must be filed and the late filing penalties paid.
- Place the company into a members or creditors voluntary liquidation
If the company is solvent it may apply for a members voluntary liquidation by way of a Summary Approval Procedure. If the company is insolvent, then it must be placed into a Creditors Voluntary Liquidation or a Court Liquidation.
If the company is facing insolvency, they need to be aware of the new Early Warning Tools in The European Union (Preventive Restructuring) Regulations 2022 (SI 380/2022) (“PRD”) for companies facing financial difficulty. For more information see link to the Information Note on the Early Warning Tools issued by the Corporate Enforcement Authority
- Otherwise the Company will be struck off involuntarily
If the company does not file the outstanding annual returns, (audited) financial statements and pay the late filing penalties then the company will be struck off the Register of Companies involuntarily.
Risks of Involuntary Strike Off
Involuntary strike off is often seen as a simple option for companies that have stopped trading or has missed its filing deadline. However, directors need to be aware of their duty to act in the best interests of the Company and comply with the Companies Act 2014.
The directors of a company that is struck off the Register for failure to file annual returns and financial statements will face several risks. These include:
- Assets of the Company vest in the State
Any assets that are in the company after it is struck off are the property of the State and if the directors or members want to access these assets they will have to restore the company by way of an administrative restoration (within 12 months) or High Court Restoration (after 12 months and within 20 years). For more information on restorations click here
- Personal liability for continuing to Trade
If the directors continue to trade while the company is struck off such trade is made in a personal capacity by the directors as the company has no legal existence. So any debts incurred by company when struck off will be personal debts of the directors.
- Prosecution by the Corporate Enforcement Authority
If a company is struck off involuntarily, the details of the company will be sent to the Corporate Enforcement Authority. The CEA will review the company and may bring disqualification proceedings against the directors in accordance with Sec 842(h) Companies Act 2014. The CEA will focus on companies that had debt outstanding when the company was struck off the Register.
The CEA commented in the Sunday Business Post in July 2023 that “significant numbers” of director disqualifications when the enforcement action resumes.”
If disqualified, a director may not act as a director or having any involvement in the management of any company, together with an order for the legal costs incurred by the CEA in bringing such application and the costs incurred by him in investigating the matter. The length of the disqualification period is a matter for the Court which is typically for a 5-year period and longer if there are other breaches of the Companies Acts or the director was a director of other companies that were struck off involuntarily.
- Revenue Proceedings
The Revenue may take proceedings against the directors of companies that have been struck off if there are taxes owed to the Revenue. The directors of companies that have been struck off previously may also find it difficult to secure a tax clearance certificate if they set up a new company in the future.
- CRO proceedings
The CRO may take Court proceedings against companies that are late filing its annual return instead of striking the company off. The directors could face fines up to €5k.
Directors have a duty to act in the best interests of the company and if the company ceases to trade or cannot continue it should take the appropriate steps to dissolve the company in the most appropriate way otherwise face the risk of disqualification.
If you require assistance with making an application to the District Court, filing annual returns or applying for voluntary strike off, please feel free to contact any of the team on 059-9186776 or conor@clscs.ie
NB: The content of this article is provided for information purposes only and does not constitute legal or other advice.
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