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Compulsory Liquidation

Compulsory Liquidation is the most serious form of company insolvency. It involves the forced closure of a business, typically following legal action by a creditor. The company’s assets are sold off, employees are made redundant, and the company is ultimately removed from the Companies House register.

Compulsory Liquidation: What It Is and Why It Should Be Avoided

Compulsory Liquidation occurs when a creditor files a Winding Up Petition in court, typically due to unpaid debts of more than £5,000. If the court approves the petition, a Winding Up Order is issued and an Official Receiver is appointed to take control of the company and begin the liquidation process.

It removes all control from the directors and can carry serious personal consequences, Compulsory Liquidation is generally the least favourable outcome and should be avoided where possible. If your company has been threatened with a Winding Up Petition, it’s vital to act quickly and seek professional advice.

Key aspects of the process include:

– The company immediately ceases trading

– Company assets are sold to repay creditors (usually on a pro-rata basis)

– Employees are made redundant

– The company is eventually dissolved and struck off the register

During this process, the conduct of the directors is thoroughly investigated. If they are found to have acted irresponsibly or wrongfully, they may face disqualification or even criminal prosecution.

Why is Compulsory Liquidation Initiated?

Common reasons include:

– A creditor is owed £5,000 or more and all other collection efforts (e.g. statutory demands, bailiff action) have failed

– The company is acting unlawfully and its continued operation is not in the public interest

 

Compulsory Liquidation is a process of last resort and carries serious consequences for both the business and its directors. If your company is at risk, early intervention can open the door to more favorable solutions like a Creditors’ Voluntary Liquidation (CVL) or Administration.

Consequences of Compulsory Liquidation

In cases where a company is heavily in debt and has no assets or recovery options, Compulsory Liquidation might seem like the only path forward. However, the consequences are significant:

– High costs often mean little or no return for creditors

– The Winding Up Petition is publicly advertised in the London Gazette, potentially damaging the director’s professional reputation

– Once liquidation starts, directors lose control of the company; decisions require court or creditor approval

 

– Director conduct is scrutinised—any signs of wrongful trading may lead to disqualification (up to 15 years) under the Company Directors Disqualification Act 1986

– Evidence of criminal wrongdoing may be reported to the Insolvency Service, possibly resulting in prosecution

Advice for Companies and Individuals

Creditors Voluntary Liquidation (CVL)

If your company’s debts have become unmanageable and creditor pressure is mounting, it can feel overwhelming. In such cases, Creditors Voluntary Liquidation (CVL) could offer a structured and professional way to close the business and address its financial issues.

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Members Voluntary Liquidation (MVL)

An MVL is, in essence, the liquidation of a company that is solvent.
A company is solvent by definition if it has assets sufficient enough to settle all liabilities in full plus statutory interest.

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Administration

Administration is a rescue process for businesses in financial difficulty which can sometimes result in the company becoming solvent again. Alternatively, a sale of the business could achieve continuity thus preserving employment and goodwill.
Administrators, who must be Licensed insolvency Practitioners, can be appointed by the company, the Directors, a creditor or by a direct application to the Court. During this process, the company is protected from any creditor taking any legal or enforcement action.

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Bankruptcy

If a situation arises where raising finance isn’t possible, your business is no longer viable and you have personally guaranteed money to creditors, one option available is bankruptcy.

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Individual Voluntary Arrangement (IVA)

If refinance isn’t the right solution for your problems, or you can’t find a lender prepared to offer the facilities you need to avoid bankruptcy, one possible solution is to enter an Individual Voluntary Arrangement (IVA).

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Documents

The following guidance sheets provide useful guidance of processes and other useful information. They are free to download.

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Creditors Voluntary Liquidation (CVL)

If your company’s debts have become unmanageable and creditor pressure is mounting, it can feel overwhelming. In such cases, Creditors Voluntary Liquidation (CVL) could offer a structured and professional way to close the business and address its financial issues.

1/6

Members Voluntary Liquidation (MVL)

An MVL is, in essence, the liquidation of a company that is solvent.
A company is solvent by definition if it has assets sufficient enough to settle all liabilities in full plus statutory interest.

2/6

Administration

Administration is a rescue process for businesses in financial difficulty which can sometimes result in the company becoming solvent again. Alternatively, a sale of the business could achieve continuity thus preserving employment and goodwill.
Administrators, who must be Licensed insolvency Practitioners, can be appointed by the company, the Directors, a creditor or by a direct application to the Court. During this process, the company is protected from any creditor taking any legal or enforcement action.

3/6

Bankruptcy

If a situation arises where raising finance isn’t possible, your business is no longer viable and you have personally guaranteed money to creditors, one option available is bankruptcy.

4/6

Individual Voluntary Arrangement (IVA)

If refinance isn’t the right solution for your problems, or you can’t find a lender prepared to offer the facilities you need to avoid bankruptcy, one possible solution is to enter an Individual Voluntary Arrangement (IVA).

5/6

Documents

The following guidance sheets provide useful guidance of processes and other useful information. They are free to download.

6/6

Creditor Portal

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Get in Touch

All initial meetings are free and confidential. The first consultation will help us establish the current position and allow us to present a range of options available to you.

Send us an email at restructuring@groupams.co.uk or call us on 0161 413 0999.

Disclaimer

AMS Business Recovery & AMS BR is the trading name of Path Business Recovery Ltd, a company registered in England and Wales. Gareth Howarth & Philip Lawrence are Licensed Insolvency Practitioners authorised to act in the United Kingdom by the Insolvency Practitioners Association.

 

The company’s registered address is 1 Hardman Street, Spinningfields, Manchester, M3 3HF. Registered in England and Wales No.: 10149403. VAT No: 242 7332 23

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