Compulsory Liquidation
This form of winding-up may be instigated by the directors of a company or by a creditor who is owed £75O or more. The directors or the creditor petition the Court for a winding up order against the company. If the company does not have a valid defence to the petition, or if it does not initiate a CVA or Administration, the Court has little discretion but to make a winding up order and to appoint the Official Receiver as Liquidator.
If there are sufficient assets, the Official Receiver will normally call a creditors meeting at which a private sector Liquidator may be appointed. Alternatively, appointments can be made by the Secretary of State for Trade and Industry.
The duty of the Liquidator is to realize the assets of the company and to distribute them to creditors in statutory order of priority.
The Official Receiver retains the duty to investigate the affairs of the company and to report to the Department of Trade and Industry under the Company Directors Disqualification Act 1986 as regards specified types of misconduct by the directors. In appropriate cases, the DTI may then issue proceedings to have directors disqualified. The Liquidator also has significant powers to issue proceedings against directors for compensation for losses caused by fraudulent and wrongful trading, or by preference, and also generally for recovery of assets. However, he can exercise these powers only if sanctioned by a Liquidation Committee or by the Insolvency Service.
Compulsory liquidation is more cumbersome, slower, less user friendly and generally less conducive to maximising asset realisations than is creditors voluntary liquidation. Directors generally opt for the latter unless available funds are insufficient for a licensed insolvency practitioner to accept appointment as Liquidator.
This information is written in general terms and cannot be fully comprehensive. Its application to particular circumstances will depend on specific facts. The views and suggestions set out are not intended to constitute professional advice or to be a substitute for specific advice.
