Compulsory Liquidation

Compulsory Liquidation

A compulsory liquidation (“Compulsory Liquidation”) is initiated by the presentation of a petition to the court for the company to be wound up by order of the court.

This is a formal insolvency procedure whereby a company is forced to close. This process can be instigated by various parties who may issue a petition. The majority of winding up petitions are presented by creditor(s) of a limited company who have not been paid monies owed to them.

If you take action before receiving a winding up petition or immediately upon its receipt, you may find that you can avoid Compulsory Liquidation.

Options on Receiving a Winding Up Petition

  1. Pay the debt
  2. Put the company into Creditors Voluntary Liquidation
  3. Put the company into Administration
  4. Defend the winding up petition
  5. Do nothing (DON’T – JUST DON’T, it will not just go away!!)

What are the stages of a compulsory liquidation?

Winding Up Petition (WUC)

An application to court to have a company wound up and a liquidator appointed to realise the assets and investigate the affairs of the company and its directors. The creditor must be owed a minimum of £750 and have waited at least 21 days for the debt to be paid. The company will have 7 days to respond to the petition and this is the last opportunity to challenge the petition and put alternative arrangements in place.

The petitioner will need to pay a fee of £1,880 on filing the petition. These fees are split between £280 Court Fees and the balance of this fee is called the winding up petition Official Receiver’s deposit. This deposit relates to a fighting fund for the Official Receiver to investigate the company and its directors, if is ultimately wound up.

Winding Up Order

Following a further 7 days, the petition will be heard by a judge who will decide what happens next. If they are satisfied that the company should be liquidated, they will issue a winding up order. Once the winding up order has been issued, there is little that can be done to stop the closure of the business, that said the company can appeal.

Official Receiver Appointed

As an officer of the court, the Official Receiver is responsible for dealing with the initial administration of the estate of the company. This may include, making decisions with regards to asset realisations as well as investigating and making enquires of the circumstances leading up to their appointment.

Company Assets Sold

Once appointed, the Official Receiver will start to liquidate the company’s assets, this could be property, vehicles, stock or other assets. The monies from the sale of assets are set aside to pay the company’s debts.

Dissolution of Company

On completion of a compulsory liquidation, the company will be struck off of the Companies House register and will cease to exist. Any liabilities that remain unpaid will be written off unless they have been personally guaranteed. Should this be the case, the director will then be personally liable for the debt. Creditors holding personal guarantee documentation may decide to take action immediately, upon the petition being issued or upon the winding up order being made, as either of these events may crystallise the creditors position.

Compulsory liquidation is the most serious action a creditor can take against your business. It is an expensive process for the creditor to initiate so the decision to do so will not be taken lightly and usually means that all other methods to recover their monies have been exhausted.

Following the closure of the business, the Official Receiver will begin to investigate the conduct of the directors, to ensure that no fraudulent activity took place and they didn’t knowingly cause the company to become insolvent. If it is decided that the directors acted unlawfully, they could be held personally responsible for the company’s debts and face disqualification.

If your business is struggling financially, don’t wait until you are issued with a statutory demand or winding up petition, get in touch with one of our specialist team on 0800 009 6106 or to find out what solutions are available to you.

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