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Compulsory Liquidation

Overview

  • This is a court-led process and so an Official Receiver (a government insolvency trained official) will be appointed to your case
  • A Compulsory Liquidation is typically started by a creditor who is owed £5,000 or more
  • It is a very strict procedure with not much flexibility

Are you experiencing the following?

  • Have you received the threat of legal action from angry creditors?
  • Have you received a Statutory Demand that you can’t pay?

If you have answered yes to both of these questions then the information below will help explain what is happening and how it is connected to a Compulsory Liquidation.


Video: Compulsory Liquidation Explained


Company Liquidation. Compulsory liquidation of a limited company or limited liability partnership explained by Richard Simms.

What is Compulsory Liquidation of a company?

Compulsory Liquidation is a court-led process that is typically forced upon a company that owes creditors above £5,000.

There are 7 grounds where a Compulsory Liquidation of a company is a viable option for insolvent companies. The most common ground comes in the form of being wound up via a winding-up petition which is typically presented by either; the director (s) or a creditor or group of creditors that the company owes money to.

FAQ: It is usually unsecured creditors who present winding-up petitions as secured creditors will rely on their security for repayment of debts.

Directors’ presenting the petition for Compulsory Liquidation

If the director has issued a winding-up petition against their own company this means that they have been convinced by a sales agent to pay for a Compulsory Liquidation instead of a Voluntary Liquidation to close their company. This is still an unusual application to see as the cost of Creditors’ Voluntary Liquidation is the same as the costs of an application for a Compulsory Liquidation by a Director.

Creditors’ presenting the petition for Compulsory Liquidation

If a creditor(s) have issued a winding-up petition then they must have first issued a Statutory Demand that was never paid by the company. The Statutory Demand will show the court that the company is unable to pay their debts and so will petition for it to be wound up.

FAQ: The majority of winding-up petitions issued within the UK come from HMRC who don’t need to use a Statutory Demand to evidence non-payment.

How Much Does Compulsory Liquidation Cost?

It will cost the creditor around £2,500 to petition to wind a company up. Similar costs are quoted for a Director led application. This the same cost as a No Asset Creditors’ Voluntary Liquidation which does not involve a court application and is more flexible on timing.

Who will be the liquidator during a Compulsory Liquidation process?

Compulsory Liquidation of a company is a court led procedure and so an Official Receiver will be appointed by the court as the liquidator of the process. Their duty within the liquidation is to investigate the causes of the company’s failure and to investigate the affairs of the company.

Last Resort

Compulsory Liquidation of a company should be a last resort process and other avenues such as Creditors’ Voluntary Liquidation should be looked into first.

How Can FA Simms Help?

If contacted at an early enough stage, one of our Insolvency Practitioners will help directors try to come to some kind of payment plan between the company and its creditors to avoid involvement from the court. Alternatively as liquidators we can advise and be appointed on the voluntary liquidation process of a Creditors’ Voluntary Liquidation which is a more flexible liquidation process for insolvent companies and opens up the option for a re-start of the business.

 
Download Compulsory Liquidation Help Sheet
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Download: Compulsory Liquidation Help Sheet

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