Compulsory liquidation is when a court forces your company into liquidation because a creditor has applied for a winding-up petition. In most cases, this creditor is HMRC because of unpaid taxes that cannot be recovered.
Navigating this type of company closure can be a really stressful time. The sooner you seek advice, the more control you have over the outcome and the quicker we can help relieve the pressure.
A creditor starts the process by filing a winding-up petition in court. This usually happens when a creditor believes your company can’t pay its debts. For a creditor to do this, they must:
Once the petition is filed, your company will receive a copy. You’ll have 7 days to respond. After that, the petition will be published in the Gazette leading to the bank freezing the company’s accounts and you will not be able to use any of the company’s assets unless you ask the court’s permission.
At a court hearing, the judge will decide whether to proceed with the liquidation. If they agree, a winding-up order is granted, and your company is officially in compulsory liquidation.
The court will appoint an Official Receiver to begin the liquidation. They’ll investigate your company’s finances, looking for any potential issues or wrongdoing, both in the accounts and how the company has been managed. If any problems are found, legal action may be taken.
This may result in your disqualification as a director or you or others who have benefitted improperly may be required to pay money back to the company.
Sometimes, the Official Receiver will continue overseeing the liquidation. In other cases, an Insolvency Practitioner will take over and manage the liquidation process from here.
At this stage, the Official Receiver or Insolvency Practitioner will assess your company’s assets like property, stock, machinery, and vehicles. They’ll then sell these assets and use the funds to pay your creditors as far as possible.
The liquidation is complete once all assets are sold and the funds used to pay creditors as far as possible. About three months later, your company will be removed from Companies House, meaning it’s officially dissolved.
Any remaining debts that haven’t been paid from the liquidation won’t be recoverable unless there’s a personal guarantee.
If the winding-up petition has been filed but the order hasn’t yet been made, you still have time to act.
Depending on your circumstances, it might be possible to:
Once the winding-up order is issued, compulsory liquidation becomes unavoidable.
The creditor who files the petition covers the upfront costs, including solicitor fees, a £2,600 court deposit, and a £343 filing fee. If the court grants the petition, the creditor can recover these costs from your company’s assets before other creditors are paid.
But unless they’re a secured or preferential creditor, they won’t have any special priority when the rest of your company’s assets are distributed.