Compulsory Liquidation

Compulsory Liquidation

Courts, such as the High Court and some county courts, can order a company to be wound up and stop trading. This is known as Compulsory Liquidation of a Company. Most commonly, creditors ask the court to liquidate a company if the company can’t pay its debts. Liquidating the company may be the only way for creditors to achieve any financial compensation or repayment.

When is a company unable to pay its debts?

• If a company owes a creditor more than £750;
• The creditor makes a specially-worded, statutory demand to the company for payment; and
• The company doesn’t pay, and they don’t attempt to reach a satisfactory compromise

This list is not exclusive – there are various ways to judge whether a company can pay its debts.

Who Else may Petition for Liquidation?

It’s not just creditors who can seek compulsory liquidation. The following can also apply:

• The company
• Directors or members
• The Secretary of State for Business, Innovation and Skills (if, for example, a European company registered in the UK doesn’t have both its head office and registered office located in the UK)
• The Financial Conduct Authority (formerly the Financial Service Authority)
• The Official Receiver

Who Knows About the Petition?

Any interested party has a right to know about the petition. Unless the court says otherwise, the petition must be advertised in the Gazette.

Who Steps in?

If the court accepts the petition and orders the company’s liquidation, someone must take over the process and guide the company through the liquidation. This person is usually known as the Official Receiver, although the court can specify other procedures if necessary.

Duties of the Official Receiver

Most importantly, an Official Receiver investigates the company and ascertains why it failed. They meet with creditors, and with people who may need to contribute to the company assets, to find a way forward. The Official Receiver appoints a liquidator to handle the formal winding-up process. If there’s no liquidator, the Official Receiver acts in their place.

What is on the Company Record at Companies House?

Successful petitions do not appear on the public company record at Companies House. It doesn’t go to the registrar, either. Instead, the Official Receive gets a copy of the winding-up order from the court. They send this order to the registrar, who adds it to the public record.

Wind up

The Official Receiver, or the liquidator, looks firstly at the company’s realisable assets. Realisable assets are assets which they can sell or dispose of to raise money. If the company holds insufficient assets even to cover the costs of winding it up, no further investigations are necessary. The Official Receiver can apply to have the company wound up, or dissolved, quickly. If this happens, the company is dissolved three months after the Official Receiver applies to the registrar at Companies House. If there are sufficient assets, the Official Receiver works to distribute them according to a specific hierarchy.

Afterwards

When the company is wound up or dissolved, there’s not much left to do. The Official Receiver, or liquidator, tells the registrar when they’ve had their last meeting with creditors, and that the winding-up is complete. The registrar registers this notice and publishes the receipt of this wind up in the Gazette. Unless the Secretary of State directs otherwise, the company is dissolved three months after the notice is registered at Companies House.