Compulsory Liquidation

What does it typically involve?

This is a process initiated by a creditor who forces the company into liquidation. The Official Receiver conducts an investigation into the conduct of the directors.

This process is usually undertaken by a creditor, who loses patience with the directors of a company and takes steps to petition the court to place the company into liquidation. The company is placed into liquidation at a court hearing and a liquidator appointed. The liquidator’s duties are similar to those of a voluntary liquidator in realising the assets of the company and making a distribution to the creditors.

An investigation into the directors’ conduct is undertaken by the Official Receiver. The directors will be under added scrutiny, as they have not taken appropriate action to bring about the liquidation, have ignored all the warning signs and have allowed a creditor to force the company into liquidation.

As a result the director(s) have not sought professional advice and as a result are more likely to have made mistakes and be criticised for their conduct. In serious cases they may face action for misfeasance, wrongful trading or trading whilst insolvent and disqualification. The directors have a duty to co-operate with the liquidator and provide specific information relating to the demise of the company. Failure to do so can lead to private or public examination.

Once appointed, the liquidator has the power to deal with all of the assets of the company, which includes selling them.
The liquidator agrees the claims of creditors and where appropriate, can make a distribution to those creditors out of the proceeds from asset realisation.

Once the liquidator has concluded his duties, the company would then be struck off.

We must stress that this is a brief overview and is not intended to allow a director to self-diagnose. We recommend that if you are under threat or considering entering into liquidation, you contact us for a free consultation to ensure that you take the appropriate action.

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