Compulsory Liquidation

As the name suggests, compulsory liquidation occurs when a company is forced into liquidation against the will of its directors. Forcing a company into compulsory liquidation represents the last step – and the most serious action – a creditor can take when it comes to recovering money owed.

A company is forced into compulsory liquidation by the courts following the presentation of a Winding Up Petition (WUP) by a disgruntled creditor. A Winding Up Petition can be served on a company owing £750 or more who have continually failed to pay its debts owed to the petitioning company despite several attempts. The WUP asks the courts to liquidate the company as they believe its inability to pay its debts indicates that the company is in fact insolvent.

Once the Winding Up Petition is issued it will be advertised in the Gazette; this will typically result in the company’s bank accounts being frozen making continuing to trade almost impossible. A court hearing will then be held to determine whether the company should be wound up. If the courts believe the company to be insolvent, they will issue a Winding Up Order which seals the fate of the company; compulsory liquidation will be imminent.

Petitioning the courts to force a company into compulsorily liquidation is the most serious action a creditor can take, and doing this requires a significant financial outlay on their part; this is testament to their determination in seeing your company closed down.

Being presented with a Winding Up Petition is not something that typically comes out of the blue; rather, it represents the conclusion of lengthy battle on behalf of the petitioning company to recover the money it is owed.

Prior to this, it is highly likely that the company’s director(s) will have been pressed by the creditor(s) for payment for some time and may have previously been served with a statutory demand. If the indebted company fails to pay the statutory demand within 21 days and does not dispute the debt, it is at this point that the creditor can petition for the company to be wound up and forced into compulsory liquidation.

Quite simply, if full payment of the money owed is not made, or a settlement or repayment plan not reached following the petition being issued, the company will eventually be forced into compulsory liquidation.

Therefore if you want to save your company from compulsory liquidation, ignoring the petition is simply not an option. You have seven days to respond or the courts will look to issue a Winding Up Order which is, effectively, an order to shut down your company. This response could involve negotiating with the petitioning creditor, defending the petition if you dispute the debt owed, or entering into alternative insolvency proceedings such as administration or a Company Voluntary Arrangement (CVA).

As a company director, you must take action immediately on receiving the Winding Up Petition if you wish to save your business and prevent it from being forced into compulsory liquidation.

If you are being threatened with a Winding Up Petition and you are worried about your company being forced into compulsory liquidation, you can arrange a free consultation with an insolvency professional at Begbies Traynor to help you understand your options to save your business.