Compulsory Liquidation

A debt solution may not be suitable in all circumstances. Fees may apply and will affect your credit rating

What is Compulsory Liquidation?

Compulsory Liquidation, usually referred to as “Winding-Up”, is the process to wind up an insolvent company through the courts.

Insolvent, what does this mean?

S123 IA 1986 sets out the definition of Insolvency:- Creditor(s) are owed more than £750 and have either served a 21 day demand which has not been met or judgment has been given or it is proved to the satisfaction of the Court that the company cannot pay its debts as they fall due or the company’s liabilities exceed its assets including contingent liabilities.

When can a compulsory liquidation occur?

Compulsory Liquidation Winding-up is a court procedure usually initiated by a creditor of the company when all other debt collection procedures have failed. When a company is insolvent and fails to pay its debts, creditors can take steps to wind up the company by issuing a petition to Court.

A winding-up order can be made if the company:

  • has decided that it should be wound up by the High Court
  • registered as a public limited company more than a year previously but has not yet been issued with a trading certificate
  • is an ‘old’ public company
  • has not begun trading within a year of its incorporation or has suspended its trading for a whole year
  • has less than two shareholders, unless it is a private company limited by shares or guarantee
  • cannot pay its debts
  • should be wound up because the Court forms the opinion that this would be just and equitable

The petitioner must serve a sealed copy of the petition, which means it has been lodged in court, on the company and also advertise the petition in the London Gazette (for companies registered in England and Wales) and Belfast for companies registered in Northern Ireland.

There will be a hearing at Court which the company can oppose. If the company needs time to settle the debt, it is possible to agree an adjournment with the petitioning creditor and if they are not prepared to agree, the company will need to appoint a barrister to attend the hearing and request an adjournment. If there are reasonable grounds for granting an adjournment, either the company needs more time to prepare their defence of the petition or they need more time to pay, the judge will usually grant an adjournment. It is vital that the company seeks legal help and advice from solicitors with insolvency knowledge.

The liquidator

When a winding-up order has been made, the Official Receiver is initially appointed as liquidator (section 136, IA 1986). The company’s creditors and contributories may appoint another individual, being a qualified insolvency practitioner, to act as liquidator (section 139, IA 1986). More than one liquidator can be appointed to act jointly.
A Liquidator is an officer of the court and has a duty to act fairly and impartially.

What does the liquidator do?

A liquidator’s function is to collect in and realise the company’s assets, and to distribute the proceeds to the company’s creditors and, if there is a surplus, this goes to the shareholders.

A liquidator has wide-reaching powers to assist him in fulfilling his function. Such powers include bringing legal proceedings in the name of the company, carrying on the business of the company and paying debts.

Who pays the liquidator?

The liquidator’s fees are generally paid as an expense of the winding-up. As such, they are generally paid out of the company’s assets, after secured creditors holding fixed charge security have been paid; but in priority to creditors who either have no security or have floating charge security over the company’s assets.

There are rules governing how liquidators fees are agreed and paid which is set out in the Insolvency Rules.

What does compulsory liquidation mean for the company directors?

When a company goes into compulsory liquidation, the powers of its directors cease and they are automatically dismissed from office.

As a former director of a company that is being wound up, you may be required to assist the liquidator and to provide a statement of the company’s assets and liabilities.

If the liquidator believes that the conditions for disqualification are satisfied, he will report that to the Secretary of State with reasons why disqualification might be appropriate.

What compulsory liquidation means for creditors and employees?

Once the company has been wound up, creditors cannot bring action against the company except with the courts’ permission. Creditors will be invited to send in details of their claims and if there are surplus funds after costs, unsecured creditors will participate equally for a dividend.

Secured creditors will be entitled to be paid from secured asset realisations. Depending on the type of security, for example a legal charge on a property, the liquidator will need to get authority to pay fees and expenses out of the funds realised. There are different rules for assets subject to debentures where the charge is not a “fixed charge” but instead a “floating charge”.

All employees of a company are automatically dismissed if a winding-up order is made. As a former employee, you may be entitled to submit claims to the Redundancy Fund for arrears of wages, holiday pay, payment in lieu of notice and redundancy (if you have been employed for more than 2 years). The Official Receiver or separately appointed Liquidator will provide information on how to submit your claim.

We are proud of our 5* Trustpilot reviews

We provide the most comprehensive debt advice and support for individuals and business owners. Our experienced team offers a personal approach to finding solutions to your debt challenges.

We offer expert debt advice
The Business Debt Advisor has the experience and knowledge to advise customers on the best solution for their debt problem, no matter how complex the current situation may be.
We offer expert debt advice
We are qualified & regulated
Offering a wide range of formal and informal debt solutions. The Debt Advisor Ltd. is authorised and regulated by the Financial Conduct Authority. Formal insolvencies are undertaken by a licensed insolvency practitioner..
We are qualified & regulated
We are good communicators
Clear and realistic information is provided to customers at all times to enable the business or personal debt problem to be solved.
We are good communicators
We find the right solution
There are debt solutions designed help your financial situation. The Business Debt Advisor can offer advice covering all solutions.
We find the right solution

This was a long established family-run business which had a strong reputation in the local community for producing bread, cakes and pastry goods. When the founding director sadly passed away, the day to day running of the business was left to his Son. Some years later it became clear that the financial affairs of the company had been neglected, and this culminated in a petition for compulsory winding up being presented against the company by HM Revenue and Customs. The order was subsequently granted and the company placed into liquidation, Beverley Budsworth of The Business Debt Advisor was appointed as Liquidator to the company by the Secretary of State, shortly after the making of the order. It transpired that the director had entered into a purported sale of the trading premises prior to the company entering into liquidation. The purported purchaser was in occupation of the property and had made various improvements to it. It was also evidenced that the purchaser had paid an initial deposit to the company, with the balance having fallen due for payment at the date of the liquidation. Solution There were no other assets to be realised, and the Liquidator immediately conducted a detailed review of the property transaction. Once the Liquidator was satisfied that the purported sale represented fair value, the sale of the property was completed, and the balance of funds realised for the benefit of the liquidation.