HomeFWJ TakeawayCompany rescueCompulsory liquidationWhat is compulsory liquidation?

Compulsory liquidation, or compulsory winding up, is the liquidation process of winding up a company by a court order.

It is most often used as a forceable company liquidation process by a creditor of a company who is owed money, who finds that the only way they can obtain repayment of that money is by putting that company into compulsory liquidation.

It is possible for others such as the company itself or for shareholders of the company to use the compulsory liquidation process, but this is more unusual.

What is compulsory liquidation?

Compulsory liquidation is commenced usually by a creditor of a company wishing to use the liquidation process in order to be paid what they are owed by the company or companies in liquidation.

Compulsory liquidation is commenced by a petition for winding up being filed in court. A creditor may issue a petition for company liquidation on one of the following grounds:-

  • they have served a statutory demand and the 21 day period for payment or response has expired;
  • they have an enforcement or execution process following a judgment which is unsatisfied;
  • they are able to prove to the court that the company is unable to pay its debts as and when they fall due, or that the company is balance sheet insolvent.

To liquidate a company and to start the liquidation process, you must be owed a minimum of £750.

Whilst a statutory demand is not necessary before issuing a petition, it is usually a good idea for a creditor to serve a statutory demand before liquidating a company as this is a good way of proving that they have an outstanding debt.

Compulsory liquidation – the procedure

The petition must be in a prescribed form in order to bring about the liquidation of a company.

  • there are rules for service of the petition when liquidating a company, and all of these rules must be followed correctly for a successful company liquidation order to be made.
  • the petition will be advertised in the London Gazette before the hearing in court. This notifies other interested creditors, and has the negative consequence that it makes everyone aware of the company’s possible financial difficulties which can have an effect on trade and/or financing. All banks review the London Gazette daily for notices of company liquidation petitions, and they may freeze a company’s bank account until the company liquidation hearing has taken place. This can have serious consequences for a company wanting to continue to trade.

It is therefore absolutely vital not to ignore a liquidation/winding up petition served on you, as not only may this lead to company liquidation, but even if dismissed, in the meantime the notice can have serious consequences on your ability to trade.

If you have been served with a winding up petition or if you are a creditor owed money, contact the team at Francis Wilks & Jones to discuss compulsory liquidation options.

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