Compulsory Liquidation

Compulsory Liquidation is the legal procedure by which a creditor begins the liquidation procedure as a result of an unpaid debt. The creditor will issue a winding up petition in court and a date will be set for the hearing of the petition. The petition will be served on the company and it will be advertised in the London Gazette. If arrangements have not been made to pay the petition debt before the hearing a winding up order will be made and the Official Receiver will be appointed liquidator.

If your company is threatened with a winding up petition you will require immediate advice and guidance from one of our experts. Once the petition has been advertised your bank account will be frozen, preventing the company from trading so it is prudent to deal with the petition before this stage.

What happens when a winding up order is made?

If you owe a creditor more than £750, and you have been unable to pay this for over 21 days, they are entitled to submit a Winding Up Petition.

Whether or not an appeal against the order is submitted, the company will immediately be required to cease to trade and the Official Receiver will be appointed. As the liquidator, they will have the capacity to:

Consider whether it is appropriate to appoint an independent Insolvency Practitioner to act as Liquidator.
Protect and realise the company’s assets.
Make repayment to creditors should funds allow.
Undertake an investigation as to the circumstances surrounding the company’s failure.

An independent Insolvency Practitioner can be appointed to handle the formal liquidation process if required by creditors

Once the Winding Up order has been made, company bank accounts will be frozen. There are very few options available to Directors at this point.

How long is the Compulsory Liquidation process?

This can vary depending on the availability of the Court to list and hear the Winding Up Petition. On average, the process can take around 3 months to complete, but various factors could make this period longer or shorter.

It’s also important to note that this process cannot be reversed. The court order is legally binding and once this form of liquidation is completed your company will cease to exist.

Who is able to start the process of liquidation?

Typically, the formal process of compulsory liquidation is enacted by creditors who are chasing their debts. If you owe your creditor more than £750 and is overdue by more than 21 days, they have the legal right to petition for the liquidation of your business in order to receive their payments.

What does Compulsory Liquidation mean for Directors?

Once your company has been placed into compulsory liquidation, it will formally be closed and the Directors power ceases. However they will have an obligation to assist the Official Receiver with the liquidation of the company by way of:

Completing a questionnaire and potentially being interviewed by the Official Receiver
Delivering up the books and records of the company
Assisting with the realisations of company’s assets, including any information if assets are held by an external party.

Failure to cooperate with the Official Receiver may result in court proceedings being issued.

During this time, the Official Receiver will investigate the reasons why creditors have not been paid and establish if any fraudulent activity is present. If the Official Receiver discovers that a company has been purposely or knowingly heading into insolvency, then the Director may be held personally responsible for the company debts which could result in personal financial issues.

For this reason, if you’re concerned about your company’s debts and are unable to make due payments, then it’s important to seek expert help from a licensed Insolvency Practitioner to determine the best course of action.

What are the advantages and disadvantages of Compulsory Liquidation for my business?

While this process may feel daunting, it typically is a last-resort scenario. Just like other options of debt relief, there are a variety of advantages and disadvantages to consider.

Advantages

Relief from debt and creditor pressure.
As a Director, if you carry out all your responsibilities then you won’t be held personally liable and can resume your career as a director elsewhere.

Disadvantages

On the other hand, as a Director you could be held personally liable for the debt if it’s discovered that you acted fraudulently, or knowingly allowed the company to fall into insolvency.
Your business reputation may be damaged.
An Official Receiver will be in control of handling the closure of your business.

Advice on Compulsory Liquidation from Restart BTi

If you have any questions regarding Compulsory Liquidation and what this process means for your business, then get in touch with one of our experienced team members at Restart BTi. Simply contact us now via phone or email, or simply complete the short form below for one of our trained practitioners to get in touch.

enquiries@restartbti.co.uk

Suite 44, Dunston House, Dunston Road, Chesterfield, Derbyshire, S41 9QD

01246 959388

Gareth Graham Self is authorised to act as an insolvency practitioner in the UK by The Insolvency Practitioners Association under office holder number 9706.
Restart BTi is the trading name of Restart Business Turnaround Insolvency Limited, a limited company registered in England and Wales no: 11517419
Registered Office: Suite 42 Dunston House, Dunston Road, Chesterfield S41 9QD
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