Compulsory Liquidation

Understanding forced compulsory closure due to a Winding Up petition

As the name suggests, compulsory liquidation is the closure of your company which is forced upon you and your business against your will. Forcing your company into liquidation represents the very last step a creditor can take when it comes to chasing for continual non-payment of money owed and is often the conclusion of a lengthy process of debt recovery.

Compulsory Liquidation following a Winding Up Petition

Compulsory liquidated is ordered by the courts following the presentation of a Winding Up Petition (WUP) by a disgruntled creditor. A Winding Up Petition can be served on a company owing £750 or more who have continually failed to pay back the money owed. The WUP asks the courts to liquidate your company as they believe it to be unable to pay its liabilities and therefore insolvent.

Petitioning the courts to compulsorily liquidate your company is the most serious action a creditor can take, and doing this requires a significant financial outlay on their part, which emphasises their determination in seeing your company closed down.

It is not an outcome that would come out of the blue; moreover, 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.

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Alternatives to Compulsory Liquidation

If you have received a winding-up petition on behalf of a disgruntled creditor, your company has seven days to respond or the courts will look to 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 WUP if you wish to save your business and prevent it from being forced into compulsory liquidation. At this stage it is too late to place the company into Creditors’ Voluntary Liquidation (CVL), and you are no longer able to sell the company or any of its assets.

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However, a Company Voluntary Arrangement (CVA) or placing the company into administration may be available options depending on your company circumstances and likely long-term viability. Alternatively, you could also take steps to defend the petition if you dispute the debt being chased.

If you are unable to pay the amount required to settle the WUP or negotiate a rescue solution, your company will be wound up by the courts and your conduct as a director will be investigated by the court-appointed Official Receiver or liquidator.