Compulsory Liquidation (Winding Up Petition)

A Compulsory Liquidation is a Court-directed method of winding up a company. The Liquidator will realise and distribute the company’s assets, and then conclude the company’s affairs.

There are a number of grounds under which a court can make a Winding Up Order, including:

• The company has decided that it should be wound up by the Court
• The company should not commence its business within a year or it should suspend its business for a whole year
• That it is just and equitable to wind up the company
• That the company is unable to pay its debts (the most common reason for winding up)

There are three ways the court may conclude that a company is unable to pay its debts:

• The value of total liabilities exceeds the value of total assets
• A statutory demand greater than £750 remains unpaid for 21 days
• The company is subject to an unsatisfied judgement execution.

The application to wind up the company must be by petition, presented either by the company, its Directors, its shareholders or any creditors of the company.

This form of liquidation is usually instigated by the creditors as a means of attempting to collect debts owed to them. Once appointed by the Court, the Official Receiver has considerable powers of investigation into the company's affairs and the reasons for its failure. In some circumstances, the Official Receiver’s investigations may include assessing the actions of a previously appointed insolvency practitioner such as a receiver or administrator of the company.

In most instances, the directors should have identified the potential onset of formal insolvency. In addition, they should have taken action themselves to select the most suitable option, rather than simply allowing their creditors to force the company into compulsory liquidation.