Compulsory liquidation

Introduction

A compulsory winding up commences when a petition for a winding up order is presented to the court.

Grounds for petition

The possible grounds for the petition are set out in the Insolvency Act 1986:

• The company has passed a special resolution to be wound up by the court.
• A public company has not been issued with a trading certificate within a year of incorporation.
• The company has not commenced business within a year of being incorporated or has suspended its business for over a year.
• The company is unable to pay its debts. A company is deemed to be unable to pay its debts where a creditor who is owed at least £750 has served a written demand for payment and the company has failed to pay the sum due within three weeks.
• It is just and equitable to wind up the company. However, the court will not make an order under this ground if some other more reasonable remedy is available.

Petitioners

The following persons may petition the court for a compulsory liquidation:

• the company itself
• the Official Receiver, who is a civil servant in The Insolvency Service and is an officer of the Court
• the Department for Business, Innovation and Skills
• a contributory. This is any person who is liable to contribute to the assets of the company when it is being wound up. (The contributory must prove that the company is solvent).
• a creditor who is owed at least £750.

Effect of winding up

The winding-up petition has the following effects:

• All actions for the recovery of debt against the company are stopped.
• Any floating charges crystallise.
• Any legal proceedings against the company are halted, and none may start unless leave is granted from the court.
• The company ceases to carry on business except where it is necessary to complete the winding up, e.g. to complete work-in-progress.
• The powers of the directors cease, although the directors remain in office.
• The employees are automatically made redundant, but the liquidator can re-employ them to help him complete the winding up.

Subsequent procedures

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