Compulsory Liquidation – When a creditor applies to the court to wind up the company. As a result, then the assets of the company are realised and distributed to creditors.
When your limited company has excessive debt, and therefore can’t pay creditors. An aggrieved creditor may then issue a statutory demand (Stat demand). Statutory demands are serious and signify insolvency issues.
Not replying or defending the claim then allows the creditor to file a winding-up petition therefore against your company. Failing to defend will, however, then lead to your company being compulsory liquidated.
To issue a winding-up petition on your company, however, requires a creditor having a debt of £750 or more owed.
Compulsory liquidation is then not a preferred option for directors. Directors opt for the appointment of either an Administrator or a Company Voluntary Arrangement.
Compulsory Liquidation involves a limited company then wound up through the courts. The courts then appoint the Official Receivers acting as preliminary liquidator.
However, unlike a CVL. A compulsory liquidation then commences once a creditor initiates the process, usually by issuing a Winding-up Petition.
The Official Receiver (OR)
The OR are civil servants and officers of the High Court. The OR closes down companies wound-up. They investigate how the then directors previously operated the company.
The Insolvency Disqualification Unit then receives the report for review.
Why commence then, a Compulsory Liquidation?
Defaulting on payment may then cause a Winding-up petition followed by a Statutory Demand or Judgement by a court. The petition by this point has then been presented to the court, and subject to the evidence presented proves the company is unable to settle its debts. Then a Winding-up Order issued.
Constraints then presenting a Winding-Up order during the Covid-19
On 20th May 2020, the Corporate Insolvency and Governance Bill draft was published. So as to then ease statutory responsibilities for certain companies, where the COVID-19 pandemic, has made their responsibilities challenging or unmanageable. The bill offers contingency measures that then apply during the COVID-19 pandemic, to stop winding-up petitions. The Bill, expected June 2020 would have retrospective powers.
When will a Compulsory Liquidation cease?
The period a compulsory liquidation then will take, depends on each individual case (e.g. the asset type involved and the complexity of the liquidation), however, once the process completes, then the company dissolves and removed from companies house register.