Compulsory Liquidation

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Compulsory Liquidation is a serious matter and is the process in which a Limited Company is forcibly closed down. This formal insolvency procedure requires the input of a professional insolvency practitioner, such as ourselves.

If you are concerned about compulsory liquidation for your business or are experiencing any financial difficulties, don’t hesitate to contact us and see how we can help you through these difficult times.

What is Compulsory Liquidation?

Compulsory liquidation is a formal insolvency process involving the courts that results in a limited company being forcibly closed down. It happens when a winding-up petition has been issued by a creditor of an insolvent company, due to a debt not being satisfied.

The creditor will use this process to force company directors into acting upon their debts, or initiating the liquidation process that will allow assets to be sold and the profits used to reimburse creditors.

Unlike in Company Liquidation, where a larger range of people can initiate liquidation proceedings for a variety of reasons, compulsory liquidation is strict, court-ordered and leaves companies with very few alternative options.

Why would a company be forced to liquidate?

There has to be serious reasons why a company should be forcibly wound up. These reasons are usually:

• If a company owes a debt of over £750 and the courts believe that there are adequate grounds for liquidation;
• If a creditor sends a final demand letter and the High Court settles on Compulsory Liquidation during a Winding Up hearing;
• If a court makes this conclusion due to other financial issues.

 

In all compulsory liquidation cases, the courts have the final say as to whether a debt is credible and if forced closure is just.

 

Compulsory Liquidation process

The process towards starting compulsory liquidation has to legally follow a set of steps before any company can be closed. The process typically goes as follows:

1. 1. Winding Up Hearing:
      After the aforementioned winding-up petition is heard at a winding-up hearing, a judge has the authority to issue a winding-up order, which will place the company into compulsory liquidation.
   2. An Official Receiver is appointed:
      Company bank accounts will be frozen and once the process is verified by the High Court and is able to proceed, an Official Receiver will be appointed to handle the closure.
   3. Official Receiver investigates the company:
      An Official Receiver will examine the company’s accounts, invoices and paperwork to ensure that there has been no wrongdoing or financial misconduct by the directors. If wrongdoing is found, the courts will be notified and appropriate legal action will be taken.

• A Liquidator (Licenced Insolvency Practitioner) is appointed:
  An appointed Liquidator will then work with assets that need to be realised. They will take over the duties from the Official Receiver and work closely with the company being liquidated to manage any concerns.

• Liquidator prepares Statement of Affairs:
  The Statement of Affairs is a fully detailed document that lists a company’s assets and liabilities, documented by the Liquidator. This will be used as a professional valuation of what the company is worth should all their assets and liabilities be sold.
  
  

• Company is dissolved:
  Finally, the liquidation procedure is wrapped up and the company’s assets are all sold, they are removed from the register at Companies House and are closed down completely.

 Can I choose my Liquidator in a Compulsory Liquidation?

In cases where the process has progressed to the point that you have had a compulsory liquidation issued against you, it is not open for you to decide on the choice of liquidator yourself.

This will be decided by the courts who issued the compulsory liquidation.

Can Compulsory Liquidation be stopped?

Under some circumstances, compulsory liquidation can be stopped. These circumstances are:

• If the debt owed is repaid in full immediately;
• If the debt is disputed and found to be incorrect by the courts;
• If the company and the creditor manage to settle on separate terms and the creditor agrees to withdraw the petition.

Sometimes, though in no way guaranteed, the courts will grant the debtor (the company) an extension to the time in which they must repay their debts. This is usually only a few extra weeks, so isn’t always suitable.

 

What are the costs involved in Compulsory Liquidation?

There are a lot of different costs involved in having a company forcibly liquidated. The main list of costs are as follows:

• Issuing a Winding Up Petition (WUP) can cost anywhere from £400 – £800.
• The fee to file a WUP is £280.
• Submitting a Statutory Demand costs between £200 – £250.
• The deposit given to the Courts and the Official Receiver is £1,600.

 

Due to these extensive costs, it is unlikely that a creditor will take this route unless the funds they are owed exceed the costs. This isn’t a guarantee however, so you must get in touch with a professional insolvency expert should you have any concerns about unpaid debts and creditors.

Compulsory Liquidation Support from The Insolvency Experts

If you are in any way concerned about your company’s finances and require the help of a professional insolvency expert, get in touch with us today to find out how we can provide you with the right level of support and guidance. 

It is important that you don’t hesitate to seek help when dealing with financial issues within your business, as leaving it too late may see you lose your right to appeal any procedures issued against you.

Most importantly, don’t panic. We are here to help and will advise you on the best outcome to your current situation.