Compulsory Liquidation

A compulsory liquidation usually occurs as a result of the presentation of a Winding Up Petition to the court by a creditor against a company that is unable to pay its debts.

The liquidation of the company is ‘compulsory’ as opposed to ‘voluntary’ and requires a court order.

Whilst it is usually a creditor that petitions for the winding up of a company, other parties can also present a winding up petition, including the Secretary of State, on the ground that it is in the public interest to wind up the company.

Following the issue and service of a winding up order, if the court orders the winding up of a company, the immediate steps to be taken are:

• A liquidator must be appointed

• The company must cease to trade immediately

Subsequent steps in the process include:

• The Official Receiver will notify Companies House of the Winding Up Order

• A decision will be taken by the Official Receiver and the company’s creditors on whether or not to:

1. Appoint an Insolvency Practitioner as liquidator in place of the Official Receiver, and
2. Appoint a liquidation committee to assist the Insolvency Practitioner. The committee will generally consist of three or five members who are creditors of the liquidated company

There are strict time limits for appointing an Insolvency Practitioner and for convening the initial liquidation committee meeting.

The liquidator’s fees will be paid using the company’s funds/assets before such funds/assets are distributed to creditors. Such fees will be approved by the liquidation committee.

In addition to marketing and selling the assets of the company to achieve a distribution of cash to the company’s creditors, the liquidator will also focus attention on investigating the activities of the company and its directors and prepare a Liquidator’s Report. This will include interviews with appropriate company personnel and access to all company books and records.

All creditors will need to submit ‘Proof of Debt’ to evidence that funds are owed to them by the liquidated company.

The liquidator will provide both a Statement of Affairs of the company and details of the liquidation committee to Companies House.

Having liquidated all assets and made the appropriate distribution to the company’s creditors, the liquidator will prepare the Final Account for the approval of the company’s creditors. If approved, it will be submitted to Companies House so that the company can be officially dissolved.

Both HMRC and the Secretary of State for Business Energy and Industrial Strategy may have an interest in conducting their own review of the company and its directors which can lead to separate criminal or civil proceedings in many cases.