A compulsory liquidation is often referred to as a ‘winding-up by the court’. This procedure is the ultimate sanction against a business that defaults on basic obligations to creditors. The compulsory liquidation is ordered by the court, typically following the petition of a creditor, the company or its shareholders.
Initially, the Official Receiver becomes the first Liquidator following the order and in some cases may pass the management of the case over to a Licensed Insolvency Practitioner.
What does Compulsory Liquidation mean?
Your company might be forced into compulsory liquidation if a creditor tries to end its operations in order to recover money owed. The process begins when creditors issue winding up petitions to the court. The rules around compulsory liquidations are laid out in the Insolvency Act 1986. Creditors are only able to get the process underway if you owe them in excess of £750 and if you have failed to comply with an official payment demand. They may also be able to take action if they have an unpaid County Court Judgement against your business. If they are successful and your company is closed as a result of the action, it will disappear from the register in around 8-12 weeks.
What is the Compulsory Liquidation process?
Your company might be forced into compulsory liquidation if a creditor tries to end its operations in order to recover money owed. The process begins when creditors issue winding-up petitions to the court. The rules around compulsory liquidations are laid out in the Insolvency Act 1986.
Creditors are only able to get the process underway if you owe them in excess of £750 and if you have failed to comply with an official payment demand. They may also be able to take action if they have an unpaid County Court Judgement against your business.
Creditors must pursue action through the courts, and they must wait 21 days after pursuing payment before they can ask the courts to issue a winding-up petition. At this stage in the compulsory liquidation process, your company can still turn things around and arrange for payment to be made or repayment plans to be negotiated. If this fails, then the courts will issue a winding-up order, and from here on in your company will be liquidated.
An insolvency practitioner will be appointed to act as the official receiver during the process. All assets will be sold off, and staff will be let go. Directors lose control of the company during this process, and may be investigated by the Insolvency Service once the compulsory liquidation process has ended.
If creditors are successful and your company is closed as a result of the action, it will disappear from the register in around 8-12 weeks.
The compulsory liquidation process is a rigid procedure that follows a set timeline of actions. Here’s the procedure as you can expect it to unfold:
- Your company owes £750 or more to one or multiple creditors. Your creditors have attempted to pursue your company for payment, and have waited a minimum of 21 days for payment. The debt has yet to be repaid.
- 21 days after pursuing payment, creditors can ask the courts to issue a ‘winding-up petition’. If approved, this petition is issued to the company directors.
- Seven days after the winding-up petition has been sent, the liquidation process can begin if the process has not been halted.
- A liquidator will be appointed (usually a licensed insolvency practitioner) and a winding-up order will be approved and issued by the courts. Bank accounts will now be frozen and the company directors lose control of operations as assets are sold and the company is wound up.
- Proceeds from the sale of assets are divided between creditors, and the Insolvency Service may investigate company directors for their actions leading to the liquidation.
- Finally, the company is struck from the Companies House register and no longer exists.
The Risks of Compulsory Liquidation
It may seem tempting to simply allow the company to go into compulsory liquidation, so you can move onto your next business chapter. However, there are considerable risks attached to doing so, and the impact on your reputation and borrowing abilities could be devastating.
You may find it hard to borrow from banks and other finance companies, and may face difficulty with winning the trust of solicitors and accountants whose services you might require in the future. What’s more is that the terms of any credit agreements you do enter in the future could be much tougher.
Rescuing Your Business
It may not be too late to stop the compulsory liquidation process. Your chances of bringing the action to an end will depend on how far into the process your company is.
You have a very small window of opportunity in which to act once formal insolvency procedures have begun. Once your company has been sent a winding-up petition, you have just seven days to respond and halt the process.
During this time, it could be possible to restore harmony by paying your debt in full or agreeing to an affordable payment plan. If these options are not possible, your options could include administration, creditors’ voluntary liquidation (CVL) or a company voluntary arrangement (CVA).
It’s important to address financial issues as soon as they arise. The earlier you attempt to rescue your business, the more options there are available to you. Turn around plans are most effective when they are attempted before any compulsory liquidation procedures have begun. A licensed insolvency practitioner can provide the expert and impartial advice that could save your company, but you need time to make this happen.
Why Irwin Insolvency?
At Irwin Insolvency, we can provide all the help and assistance you need if you are facing compulsory liquidation. We have been in the insolvency business for over 25 years and leave no stone unturned when helping you find the best possible solution for your current requirements.
We can provide you with clear, useful, factually accurate advice and have an excellent track record when it comes to helping keep struggling businesses afloat.
Here are the most important reasons to choose Irwin Insolvency if your company is experiencing financial difficulties:
- Irwin Insolvency has over 25 years’ experience assisting companies in financial distress. We have thousands of satisfied clients across an impressive range of industries.
- Irwin Insolvency can rescue your company from financial difficulties, or assist you to wind up operations in the most efficient manner possible.
- Our compassionate team of personable and professional insolvency practitioners pride themselves on their level of customer service.
- We take the time to really understand your company’s situation. We know that no two companies are ever the same, and provide personalised advice for every client.
- We explore all of the available insolvency options available to your company, providing expert, impartial and potentially company-saving advice.
Find out more with our complete guide to compulsory liquidation
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To get in touch today and find out more about your options, simply give us a call on 0800 009 3173 or send an e-mail to email@example.com.
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