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Compulsory Liquidation

When a company is unable to meet its liabilities and creditors feel they have exhausted all avenues to recover monies owed, they can petition for your company to be placed in compulsory liquidation

Compulsory liquidation is not an outcome that would come out of the blue. It is the inevitable conclusion of a company failing to meet its liabilities and thus becoming insolvent. The business is no longer viable and a creditor has petitioned for the company to be wound up due to continual non-payment. If full payment is not made or a settlement is not reached, the company will eventually be forced into compulsory liquidation.

Prior to this, it is highly likely that the company director(s) will have been pressed by the creditor(s) for payment for some time and served a statutory demand. If the indebted company fails to pay the statutory demand within 21 days and does not dispute the debt, it is at this point that the creditor can petition for the company to be wound up – also known as compulsory liquidation.

This is the most serious action a creditor can take against your company. It will cost them around £2,000 to send a statutory demand and serve a winding-up petition which emphasises the creditor’s determination in seeing your company close down.

If you have received a winding-up petition on behalf of a disgruntled creditor, your company has seven days to respond or The Court will soon issue a winding up order which is, effectively, an order to shut down your company.

As a company director, you must take action immediately on receiving the winding-up petition if you wish to save your business. It would be too late to place the company into Creditors Voluntary Liquidation as this process has been taken out of your hands, and you cannot sell the company or assets. However, a Company Voluntary Arrangement might be an available option depending on your company circumstances and even administration if the business is still viable and could benefit from restructuring. You could also take steps to defend the petition if you feel it is within your company’s rights.

If you are unable to defend the company (which can be expensive in the High Court) or negotiate a rescue solution, your company will be wound up by The Court and your conduct as a director will be investigated by the Official Receiver or liquidator.

At the earliest possible stage in the compulsory liquidation process, it is highly recommended that you speak with a licensed insolvency practitioner for advice. We have licensed IPs across the UK and you can arrange a free initial consultation at your local Begbies Traynor office.

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Insolvency Practitioners Association Institute of Chartered Accountants in England and Wales R3: Association of Business Recovery Professionals ICAEW Business Advice Service Turnaround Management Association ACCA (the Association of Chartered Certified Accountants) ICAS | The Institute of Chartered Accountants of Scotland
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