Compulsory Liquidation

Overview

  • Where a creditor is owed more than £750 they may petition to the Court for a company to
    be liquidated.
  • The company may also petition the Court themselves, as an alternative to a creditors
    voluntary liquidation.
  • Upon the making of a winding up order the company ceases to trade, all employees will be
    made redundant and the directors powers to act also cease.
  • Once the company is in liquidation the Official Receiver (a Government Insolvency Practitioner)
    is automatically appointed as liquidator however an independent Insolvency Practitioner may be appointed to act as liquidator to realise the company’s assets.
  • The realisation of assets comprises not only physical assets such as stock and plant and
    equipment but also the recovery of any company assets / monies which had been dissipated
    by means of an antecedent transaction, typically a preference or a transaction at an
    undervalue.
  • The liquidator will also collect any debts owed to the Company including any amounts owed
    by the Directors under an overdrawn loan account.
  • Money raised from the realisation of assets will be used first to discharge the costs of the
    liquidation and then to pay the Company’s creditors. Secured and preferential creditors will
    be paid first.
  • Unsecured creditors are paid on a pari passu basis i.e. each creditor will receive a dividend in
    proportion to the value of his debt.
  • Once all of the company’s assets have been dealt with the Company is dissolved.

Implications for Directors

In a Compulsory Liquidation the Official Receiver must submit a report of the conduct of anyone who has been a director of the company in the last three years.

The report is confidential and is submitted to the Department of Business, Energy and Industrial
Strategy. The Department will assess the report and decide whether the directors in question
should be allowed to act as directors of other limited companies in the future.

When preparing his report on the directors’ conduct the Official Receiver will look at a variety of
issues, which include:

  • Non-payment of crown debts
  • Taking customer deposits
  • Personal benefits obtained by directors
  • The adequacy of the bookkeeping
  • Any evidence in support of insolvent trading

The Department has the power to ban directors from holding office for a period of 2 – 15 years.