While a Creditors Voluntary Liquidation is initiated by the directors of a company and gives them a strong element of control, a Compulsory Liquidation is usually when a creditor takes the initiative and starts the process by issuing a Winding-Up Petition.
There might be a thousand causes of an unpaid debt or broken promises that it would be paid and hasn’t been.
Ultimately - when a creditor or other party decides to issue a Winding-Up Petition, it’s their final way of saying “enough is enough.”
Sometimes this will be the latest stage of legal action - after they’ve already issued a Statutory Demand or obtained a court judgement. If that’s the case then these other measures will be judged as sufficient evidence by the court that the company can’t pay its debts and the Winding-Up Order will be granted.
In rare cases directors can apply to have their own company forcibly wound up if they have debts greater than £750 that cannot be repaid.
Shareholders must agree and the case must be made to a judge as to why the company has to be liquidated in this manner. If some shareholders dissent on this approach, directors may still proceed but they have to be in complete agreement.
Occasionally, a director that has fallen out with their colleagues may want to liquidate the company themselves but they will only be allowed to pursue a Winding-Up Petition if they are both a shareholder and a creditor.
A Statutory Demand is only one of the stages in the compulsory insolvency process:-
- Statutory Demand - If a creditor is owed £750 or more they can issue one
- Winding Up Petition - If the demand is ignored or can’t be settled or set aside then a Winding-Up Petition can be served on the company
- Official Court Hearing - A judge will look at the evidence and hear arguments to decide if the Winding-Up Order is granted
- Official Receiver - Now the company is formally in Compulsory Liquidation, an official receiver is appointed as the liquidator of the company. They’ve got up to 12 weeks to decide if they wish to call a meeting of the company’s creditors
- Liquidator appointed - The liquidator will administer their formal duties including notifying Companies House, place an announcement in the London Gazette and contacting creditors
- Finalisation - once the Liquidator has raised funds through selling the company’s assets - they will distribute them to creditors and issue a Final Progress Report to Creditors setting out the situation and obtaining a release from office
Once the Compulsory Liquidation process begins then creditors cannot bring any further legal action against the business.
After the Compulsory Liquidation process is completed then the business is dissolved and formally closed.
Directors aren’t held responsible for any unpaid company debts and are free to move onto their next venture unless they’ve been proven to have broken the law or given personal guarantees on the debt.
If any directors have been found guilty of wrongful trading or any voidable transactions then they may have to make a repayment from their personal funds to the company as settlement.
Winding Up a Partnership
Like any other legal arrangement - partnerships also may come to an end.
It might be for business reasons, legal affairs or even personal - people and businesses change over years and one of you might want to do something else.
Fortunately, there are easy ways to dissolve a partnership just like any other legal business entity.Find out more
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