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What is Compulsory Liquidation?

Compulsory liquidation is controlled by the UK Courts and usually it means an unpaid creditor has asked the Court to issue a winding up order against your company because they have not been paid. At the Court hearing, if the judge agrees and the company is forced into liquidation, an Official Receiver (a civil servant) will be appointed the liquidator.

COMPULSORY LIQUIDATION IN DETAIL

There are various parties that can apply to have a company wound up by the Court, but more often than not it is by a creditor (person or business that you owe money to). For Compulsory Liquidation to be considered the creditor has to be owed a minimum of £750. The most common creditor to issue a winding up petition that leads to Compulsory Liquidation is H M Revenue & Customs.
It is a common myth that the creditor has to first serve a Statutory Demand, although most do this as it gives the company or LLP the right to dispute the debt by having the Statutory Demand set aside. Otherwise there is a risk of getting to Court and the debt disputed. The judge stops the winding up and awards legal costs to the company for wasted time.
To be compulsory wound up means that the judge at the Court hearing actually orders the company to be put into liquidation. Both sides can attend and argue their case. Often the judge will consider an adjournment giving the company time to prepare a full defence or be given time to pay, although it would be risky to rely on that.
As soon as the company goes into liquidation the director’s powers cease and the Official Receiver from the Insolvency Service will take over. They write to the directors within a very short time requesting the directors fill in a questionnaire and attend a meeting.
In due course, an independent licensed insolvency practitioner may be appointed liquidator. This usually happens if creditors request it or the case is complex.
In a Compulsory Liquidation the government charge a fee for every asset realised. This fee is usually 17% of the assets realised and is known as the DTI ad-valorem fee or Secretary of State fee. It is another reason why directors may try and avoid Compulsory Liquidation.

TO BE COMPULSORY WOUND UP MEANS THAT THE JUDGE AT THE COURT HEARING ACTUALLY ORDERS THE COMPANY TO BE PUT INTO LIQUIDATION.

A WORD OF ADVICE

If your company or LLP is served with a winding up order you must be given 14 clear days written notice of the Court hearing date. A word of warning – this notice is advertised in the London Gazette – your bank will see it and freeze your bank account. If you dispute the debt you must get on and deal with it.
If your business is facing Compulsory Liquidation or you are in doubt, contact us today. We can help you find a positive outcome.