Fraudulent Application for Removal of Name: S. 251

A fraudulent application for removal of name is a voluntary strike off filing made to escape what the company owes, and section 251 of the Companies Act, 2013 is the provision that makes it a bad idea. It attaches personal liability and a fraud punishment to the persons in charge of the company's management, and it says in terms that the company having been dissolved makes no difference.

What is a fraudulent application for removal of name under section 251?

Sub-section (1) describes the filing it is aimed at. It applies Where it is found that an application by a company under sub-section (2) of section 248 has been made with the object of evading the liabilities of the company or with the intention to deceive the creditors or to defraud any other persons.

Three limbs sit inside that phrase and any one of them is enough:

• an object of evading the liabilities of the company;
• an intention to deceive the creditors;
• an intention to defraud any other persons, which is wider than creditors and reaches anyone.

Note the route it is scoped to. Section 251 speaks only of an application under sub-section (2) of section 248, which is the voluntary strike off a company applies for itself. The Registrar's own suo motu removal under section 248(1) is not what this section is about. Both routes are set out in strike off of a company.

What happens to the people in charge?

Two things, and the sub-section imposes both on the persons in charge of the management of the company, notwithstanding that the company has been notified as dissolved.

Clause (a) makes them jointly and severally liable to any person or persons who had incurred loss or damage as a result of the company being notified as dissolved. The measure is the loss caused by the dissolution, and joint and several liability means a claimant can recover the whole of it from any one of them.

Clause (b) makes them punishable for fraud in the manner as provided in section 447. Section 251 does not set its own punishment. It points at the general fraud provision, whose imprisonment and fine ranges are set out in fraud under section 447.

Why does dissolution not end the exposure?

Because the liability is fixed on people rather than on the company. The words notwithstanding that the company has been notified as dissolved are in the operative part of sub-section (1), so the event the applicants were trying to reach is expressly made irrelevant to their own position.

Section 248(7) works the same way from a different direction. It provides that the liability of every director, manager or other officer who was exercising any power of management, and of every member of a company dissolved under section 248(5), continues and may be enforced as if the company had not been dissolved. Section 250 then keeps a narrow legal existence alive for realising amounts due to the company and discharging its liabilities. Read together, the Chapter is built so that striking a name off the register settles nothing about who owes what.

What can the Registrar do about it?

Recommend a prosecution. Sub-section (2) provides that Without prejudice to the provisions contained in sub-section (1), the Registrar may also recommend prosecution of the persons responsible for the filing of an application under sub-section (2) of section 248.

Two words in that sub-section carry most of its effect. Also means the recommendation sits on top of the civil liability and the section 447 punishment rather than replacing either. Recommend means the decision to prosecute is not the Registrar's to make under this sub-section.

A third point is about who is reached rather than about a word. Sub-section (2) points at the persons responsible for the filing of the application, which can be a narrower group than the persons in charge of the management named in sub-section (1).

For anyone screening a counterparty, a fraudulent application for removal of name is the reason a struck off company is not a closed file. The restoration routes that can bring the name back, including the twenty year window for a creditor or workman, are covered in strike off of a company, and the investigating agency that takes on the larger cases is described in the serious fraud investigation office.

Flock reports the filings themselves, each stamped with its date and linked back to the exchange or regulator that published it. What any of it means for you is your call to make.