Compulsory Liquidation
At BRI Business Recovery and Insolvency, we help companies who are facing financial difficulties. If your company is facing financial issues and would like some professional advice please contact our team today.
What is Compulsory Liquidation
Compulsory liquidation often occurs when one or more creditors petition the court for the company to be wound up.
The company has an opportunity to defend itself in court if they dispute the debt but if the judge rules the debt is valid and overdue the winding up order is likely to be made.
Sometimes a breakdown in the relationship between directors and/or shareholders results in a position where some feel it is right for the company to be wound up and in this case those directors or shareholders can petition for the winding up/ compulsory liquidation.
If a company becomes aware of a petition for winding up they should contact BRI immediately as we can often help to avoid a compulsory liquidation.
The Official Receiver is automatically appointed as liquidator in a compulsory liquidation. Creditors would get the opportunity to appoint an alternative insolvency practitioner but only if they held sufficient votes to do so.
Contact us if you would like further information and assistance regarding any aspect of liquidating your business. There is no charge for doing so and it is without obligation
Compulsory Liquidation Process
Compulsory liquidations tend to follow the below process.
- Initiated by a Petition for Winding Up: The petition is typically initiated by a creditor, but can also be brought by shareholders, directors or the company itself. This is filed in court and then served on the company following which a hearing to consider the petition will be held.
- Winding Up Order: If the court determines that the company is unable to pay the petition debt then a winding up order will be made and the company is in liquidation.
- Appointment of a Liquidator: If the winding up order is made the Official Receiver is automatically appointed as liquidator in order to manage the liquidation process. This involves many areas including investigations into the director’s conduct, realising the company’s assets and distributing the proceeds to creditors to pay off debts.
- End of Business Trading and Operations: At the point of liquidation, the company must cease trading, with the exception of activities necessary for the liquidation to be completed, which the liquidator would manage and approve.
- Removal of Directors’ Powers: At the point of compulsory liquidation, the director’s power ceases.
What Should I Do If I Have Been Served With A Petition for Winding Up?
If a company becomes aware of a petition for winding up they should contact BRI immediately as we can often help to avoid a compulsory liquidation.
Alternative Liquidator
The Official Receiver is automatically appointed as a liquidator in a compulsory liquidation.
However, creditors may get the opportunity to appoint an alternative liquidator, such as an insolvency practitioner at BRI. This might occur if the Official Receiver does not have the capacity to deal with the liquidation or if creditors have sufficient voting power to choose an alternative liquidator. Whilst both liquidators are required to do the same job you should contact BRI as soon as possible to discuss how they can assist if a petition has been presented or a winding-up order recently made.
Impact of Compulsory Liquidation
Compulsory liquidation will affect many of the parties involved.
Directors – company directors lose their control within the company.
Employees – the employees will lose their jobs and may have to go through government schemes for claiming unpaid wages, holiday pay, notice pay and redundancy.
Suppliers – suppliers may experience financial strain as invoices are unlikely to be paid unless there is a distribution to creditors usually many months or sometimes years later depending upon the complexity of the case.
Stakeholders and Shareholders – stakeholders and shareholder will lose their investment or any interest they had in the company.
BRI and Compulsory Liquidation
At BRI, we have worked with many clients through the compulsory liquidation process. Sometimes, that is as a result of the client petitioning themselves for winding up or, at other times, acting as a liquidator at the request of creditors. Contact us if you would like further information and assistance regarding any aspect of liquidating your business. There is no charge for doing so, and it is without obligation.