Compulsory Liquidation (insolvent)

Compulsory Liquidation is when a creditor petitions itself against the company to wind it up.

Anyone can petition, however HMRC are usually the ones to do so as the process costs the creditor money.  The petition is heard in the court and if granted, the company is wound up and an Official Receiver is appointed (OR). The first task of the OR is to contact the directors of the company and understand what assets there are for creditors etc.  Although, what might look like an attractive option for a director due to the fact that the creditor pays for the petition (wind up), it is not advised and should only be a last resort. The reason for this is the director will come under criticism for allowing a creditor to essentially pay to wind the company up. Although the director doesn’t owe the debts personally (the company does), they are responsible for the company and by doing nothing doesn’t reflect well on the director certainly as winding up can takes months.

Compulsory Liquidation 2

Things to be aware of if compulsory liquidation is the only option:

> You will lose control of the process as you are waiting for a creditor to petition. > It is a court appointment and an official receiver will be appointed on behalf of the creditors. > The official receiver WILL carry out the same duties as the liquidators and realise any assets and investigate directors. > ALL directors Loan accounts that are overdrawn will be pursued and in some instances will result in the director being made personally bankrupt if unable to pay. > Drawings and Dividends from the director will be scrutinised along with other payments. > Antecedent transactions (creditors that have been preferred to others) can be pursued (preference payments in the lead up to insolvency). > Any assets that have been sold prior to liquidation will be investigated to see if market value was achieved etc and funds were used accordingly.

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Things to be aware of if compulsory liquidation is the only option:

> You will lose control of the process as you are waiting for a creditor to petition. > It is a court appointment and an official receiver will be appointed on behalf of the creditors. > The official receiver WILL carry out the same duties as the liquidators and realise any assets and investigate directors. > ALL directors Loan accounts that are overdrawn will be pursued and in some instances will result in the director being made personally bankrupt if unable to pay. > Drawings and Dividends from the director will be scrutinised along with other payments. > Antecedent transactions (creditors that have been preferred to others) can be pursued (preference payments in the lead up to insolvency). > Any assets that have been sold prior to liquidation will be investigated to see if market value was achieved etc and funds were used accordingly.

winding-up-petition-2

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