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Compulsory liquidation

What is Compulsory Liquidation?
Put simply, Compulsory Liquidation (CL) can be the inevitable outcome of a company failing to meet its liabilities. In almost every case, the warning signs will have been evident for some time, usually through creditors pressing for payment. If the company fails to pay a statutory demand within 21 days and doesn’t dispute the debt, then the company can find itself in compulsory liquidation.

The process is often initiated by a creditor who isn’t prepared to wait any longer to receive payment and has exhausted all other channels. In order to bring about compulsory liquidation, the creditor presents a winding up petition the court which then leads to the granting of a winding up order. At this point the official receiver is usually appointed as liquidator. His role is then to investigate the failure of the business and to deal with its assets and liabilities.

Can I avoid it?
If your company is served with a winding up petition, you need to act swiftly. This is yet another occasion where our early intervention can mean the difference between a business surviving or going to the wall. However, speed is of the essence and we need to be contacted as a matter of urgency in order to have a chance to challenge the CL process.

Although it would be too late to enter into a Creditors Voluntary Liquidation (CVL), there might still be the option of a Company Voluntary Arrangement (CVA). We will be able to assess your situation and make appropriate recommendations.

What is the Advertisement of the Petition?
A minimum of 15 days before the court hearing of the winding up petition, the petition can be advertised in the London Gazette. Banks and other financial institutions study this publication closely as once they are aware of impending petitions they are obliged to freeze all accounts held by the business in order to stop assets being sold to the disadvantage of the creditors. This brings an end to further trading. Again, if we are involved early enough, we can stop the petition being advertised.

Am I personally liable?
A CL could result in you being banned as a director for up to 15 years under the Company Directors Disqualification Act 1986. You could also face criminal proceedings under the Social Security and Administration Act 1992and the Criminal Justice Act 1988 for abuse of the PAYE system. Under the Income Tax (Employment) Regulations 1993, HMRC is entitled to recover unpaid PAYE.

This means that you must take all necessary steps to protect the assets of the business, act responsibly and conform to the liquidator’s wishes in order to avoid prosecution.

A CL is the only form of liquidation that can be applied to partnerships in England, Wales and Northern Ireland, and may result in individual partners entering Bankruptcy or Individual Voluntary Arrangements (IVA).

 

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