Compulsory Liquidation
Compulsory Liquidation vs Voluntary Liquidation
Call Now: 08000 842 844
Compulsory Liquidation
This page is here to educate Directors on the difference between compulsory liquidation and voluntary liquidation. Compulsory liquidation is when a company is forced into liquidation, usually by one of its creditors.
The purpose of compulsory liquidation is usually to get a better return for the creditors where previous attempts by creditors to collect monies owed have failed.
The first step before compulsory liquidation can sometimes be in the form of a Statutory Demand which gives the Directors 21 days to pay in full. If the debt is not repaid within the 21 days the next step will usually involve the creditors applying for a Winding Up Petition to be heard at court. Once the Winding Up Petition has been heard and approved it is then made into a Winding Up Order. At this stage the company will be closed down and put into compulsory liquidation.
Once the compulsory liquidation has been approved at the high court the Secretary of State then appoints the Official Receiver. The Official Receiver has two main duties they are as follows:
1. To get the best return for the creditors.
2. To investigate the directors on the running of the company.
The Official Receiver will usually go through the past three years annual accounts, management accounts and invoices, etc to determine whether the demise of the company was down to neglect on the Directors' part. If the Directors are found to be guilty of what is called 'Wrongful Trading' the can be left open to disqualification as a Director and of all future appointments as a Director, a fine or in the worst cases even imprisonment.
Wrongful Trading in simple terms is irresponsible trading and mismanagement of an Insolvent company. Directors should seek advice as early as possible to make sure they avoid these situations properly.
In comparison, voluntary liquidation, as the name would suggest is not frowned upon and is the proper way to close a company down voluntarily. The Directors have more control and are showing initiative as opposed to appearing to neglect the company and its creditors.
To find out where you stand and how you can come out of this situation in the best way possible contact us today on 08000 842 844.
