Compulsory liquidation occurs when creditors have lost patience and decided to pursue the recovery of their claim through a court process. This can result in creditors seeking to wind up the business. This decision is unlikely to be taken lightly as it may result in creditors recovering significantly less than they are actually owed.
The process of compulsory liquidation can begin when a creditor presents a winding up petition to Court for issue and the court will determine at a hearing whether or not to wind the company up.
When a company has gone into a winding up process it will no longer be able to trade and it will ultimately cease to exist. The Official Receiver is appointed to protect the assets of the company and undertake an investigation into the conduct of the directors and any shadow directors. Assets are realised by the Official Receiver or a subsequently appointed liquidator and a dividend paid to creditors if sufficient funds are realised.
What can happen?
Once proceedings have commenced it is difficult to prevent unless the petition debts are paid in full or can be shown to be disputed.
In the majority of cases the company will cease to trade when the petition is advertised prior to the hearing, as this would usually cause the bank to freeze the bank accounts.
Once the winding up order is made an investigation will take place to establish what assets can be realised and the conduct of the directors will also be reviewed.
Compulsory liquidation is usually initiated by creditors as a last resort to obtain payment of their debt. In order to prevent creditors seeking to wind up your company it is imperative to open discussions if you have the funds and assets available to settle such debts. Equally it is important to seek advice before a winding up petition is issued as an outstanding winding up petition can limit the other options available.
There is plenty of help and advice available if you are having issues with cash flow or making payments to creditors on time. Getting the right advice from a specialist at the earliest opportunity could prevent your business from entering liquidation.