A Compulsory Liquidation is a court directed method of winding up a company’s affairs i.e. realising and distributing its assets and concluding it’s affairs in general.
There are a number of grounds under which a Court can make a Winding Up Order, principally being that the company has resolved that it be wound up by the court, that it does not commence its business within a year/suspends its business for a whole year, that it is just and equitable to wind-up or, most commonly, it is unable to pay its debts.
There are 3 ways the court may conclude that a company is unable to pay its debts:
- Total liabilities exceed total assets in value.
- A statutory demand greater than £5000 remains unpaid for 21 days.
- The company is subject to an unsatisfied judgement execution.
The application to wind up the company must be by petition, presented either by the company, its Directors, its shareholders, any creditor or creditors of the company and designated others.
If the directors wish to continue trading a company but are facing creditor pressure, they should seek early advice. Generally the sooner advice is sought the greater the options are.