Compulsory liquidation is a legal process that forces a company to close when it cannot pay its debts on time or in full, and its creditors apply to the court for winding-up petition. If granted, the company is closed, its assets are sold and proceeds are distributed to creditors to repay the debt as much as possible.
How does compulsory liquidation start?
Compulsory liquidation begins when a creditor—owed £750 or more—files a winding-up petition with the court. This usually happens after repeated attempts to recover a debt have failed. The process then typically follows these steps:
- Statutory demand: The creditor issues a formal demand for payment, giving the company 21 days to settle the debt.
- Winding-up petition: If the debt remains unpaid, the creditor can apply to the court for a winding-up petition.
- Petition served on the company: The company is formally notified of the petition, providing an opportunity to challenge it.
- Gazette notice published: Seven days after being served, the petition is advertised in The Gazette. This alerts other creditors and often results in banks freezing the company’s accounts.
- Court hearing: If the court determines the company is insolvent and unable to pay its debts, it will issue a winding-up order.
- Official receiver appointed: The official receiver is assigned by the court to oversee the liquidation process, including investigating the company’s affairs and identifying assets to repay creditors.
From this point, the directors must cooperate with the liquidation process.
A winding-up petition can lead to your company being forcibly closed. Don’t wait for the courts to decide—get professional guidance on how to protect your business and minimise the impact.
Who can put a company into compulsory liquidation?
The process is most commonly started by a creditor who petitions the court to liquidate a company that has failed to pay its debts. But other parties, such as shareholders or directors, can also apply. This might happen when there’s been a dispute between them on the future of the company.
What happens when a company goes into compulsory liquidation?
Once a winding-up order is issued and the official receiver appointed, the company’s directors lose control of the business and an official receiver takes over. Their key responsibilities are to:
- Investigate the company’s financial affairs
- Value and sell company assets.
- Distribute proceeds to creditors in order of priority.
- Dissolve the company, removing it from the Companies House register.
As with all insolvent liquidation processes, the actions of the directors will be investigated to determine whether any misconduct contributed to the company’s insolvency.
If your company is at risk of creditors taking action to wind it up, seeking professional advice early can help you explore the best course of action.
What happens to employees in compulsory liquidation?
Employees are made redundant as part of the company closure. While employee payments are given priority in liquidation, there’s not always enough funds. In this case, there are employee entitlements , such as redundancy, wages that are in arrears, and outstanding holiday, that can be claimed from the government.
What are the consequences for company directors?
Directors are legally required to cooperate with the official receiver and provide all company records. If wrongful trading or misconduct is found—such as continuing to trade while knowingly insolvent—directors could face fines, disqualification or, in severe cases, criminal charges. However, if you’ve acted responsibly, you won’t be held personally liable for company debts.
If you’re stressed about your company’s debts, get in touch. Our experts are here to walk you through your options. Call for a free, confidential assessment of your situation.
Can directors avoid compulsory liquidation?
If your company is facing a winding-up petition, taking action quickly can open up alternative solutions, such as:
Negotiating with creditors
In some cases, arranging a repayment plan may prevent your creditors from seeking a compulsory liquidation.
Creditors’ Voluntary Liquidation (CVL)
Creditors’ Voluntary Liquidation is (as the name suggests) a voluntary liquidation approach that allows directors to close the company on their own terms.
Start Afresh Liquidation
Start Afresh Liquidation helps directors close an insolvent company legally, write off debts and then move forward with a clean slate.
Get expert advice before it’s too late
If your company is struggling with mounting debts or has received a winding-up petition, taking action now is crucial. Waiting too long can lead to court intervention and forced closure.
Whether you need to explore a Creditors’ Voluntary Liquidation (CVL), negotiate with creditors or consider alternative rescue strategies, our licensed insolvency experts can guide you through the best course of action.
The sooner you act, the more control you retain over the outcome. Don’t let your company’s future be decided for you—speak to an expert today.
