Compulsory Liquidation
Explainer
A Compulsory is the legal formal closure of the Company, ordered by the Court.
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It is called "Compulsory" because the Court orders it to happen (rather than Directors choosing it to happen).
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Risk Management
As a Director, it is important to cooperate with the investigations of the Official Receiver or Liquidator.
Compulsory Liquidation or Winding Up by the Court (WUC) is a legal process where a Court orders that a company must be placed into liquidation so its assets can be sold to pay back its debts. This happens when the company can't pay what it owes, and one or more creditors (people or businesses it owes money to) ask the court to step in. The process after the company has been placed into liquidation is similar to a CVL.
How is a company placed into Compulsory Liquidation?
Statutory Demand or Court Judgment
Before applying for compulsory liquidation, a creditor generally has to establish that the company can’t or won’t pay its debts.
To do this, the creditor can serve a statutory demand (a formal request for payment, usually giving the company 21 days to pay).
Alternatively, the creditor might already have a court judgment proving the debt, which can strengthen their case for liquidation.
File a Winding-Up Petition and serve of the company
If the company fails to pay within the statutory demand period, the creditor can file a winding-up petition with the court. This document formally requests that the court liquidate the company due to its inability to pay its debts.
Court Hearing
The court schedules a hearing to review the petition and any responses or objections from the company. If the court agrees that the company is unable to pay its debts, it will issue a winding-up order. This order places the company into compulsory liquidation.
Appointment of a Liquidator
Once the winding-up order is made, a liquidator (usually an insolvency practitioner) is appointed to take over the company’s assets and affairs. The liquidator’s role is to sell off the company’s assets, settle any legal or administrative fees, and distribute the remaining funds to creditors in order of priority.
How does it help?
There is a legal process to deal with company's employees, assets and creditors.
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Where a company cannot meet ongoing payroll, it enables employees to get payment from the redundancy payments office including unpaid salary, notice pay and redundancy.
What are the potential outcomes of a WUC?
There is only one outcome. All the assets of the business are sold to pay costs and creditors and the company will cease to exist.