The Insolvency Company

Company Closure Services

Compulsory Liquidation

Compulsory liquidation (WUC) is a formal insolvency procedure which results in a company being forcibly shutdown.

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Who is compulsory liquidation for?

Compulsory liquidation (WUC) is a formal insolvency procedure which results in a company being forcibly shutdown. The compulsory liquidation process is typically initiated by disgruntled or otherwise outstanding creditors of a limited company through a court order known as a Winding Up Petition (WUP). A WUP notifies a company that a petition has been lodged to bring about the closure of the business and the liquidation of its assets.

Benefits of a compulsory liquidation

In the case of Compulsory Liquidation, a creditor has usually been chasing the company for payment of a significant amount, and on finding themselves unable to collect what is owed, they petition through the courts for the company’s liquidation.

While liquidation is never the ideal situation for a limited company director to find themselves in, for some it is the most appropriate way of dealing with company insolvency and minimising the losses to outstanding creditors.

How does a compulsory liquidation work?

Winding Up Petition

The first step of compulsory liquidation, which is sometimes referred to as a WUC, is for a creditor (which may be HMRC) to issue a WUP against the company. The petitioner must be owed a minimum of £750 and have waited at least 21 days for the debt to have been repaid. This figure has increased to £10,000 as per the Government’s temporary measures which will apply for the period 1 October 2021 to 31 March 2022. Once a WUP has been issued to the debtor company, seven days must pass before this is advertised in the Gazette. Following the advertisement, a company will typically find that their bank accounts will be frozen leaving the company unable to continue to trade.

Winding Up Order

After a further seven days the WUP will be heard by a Judge who will then decide the next step. Once the court is satisfied that the company should be liquidated, they will issue a Winding Up Order and an Official Receiver will then be appointed. Trade must stop at this point, although it is likely this will have already happened upon the WUP being issued.

Official Receiver Appointed

Upon being appointed, the Official Receiver – sometimes known as a liquidator – will take over control of the company, meaning the existing directors will cease to have any influence over the day to day running of the business. In certain cases the directors may be required to assist the Official Receiver by providing information on customers, stock, or other assets.

Company Assets Are Sold

The Official Receiver will begin the process of liquidating the company’s assets which may include stock, vehicles, property, or machinery. All proceeds from the sale of assets, along with any cash held in the company’s bank account, will be ring fenced by the liquidator in order to repay the company’s debts as far as possible.

Dissolution of Company

Following the sale of assets, the company will be officially shutdown and its name removed from the register at Companies House. The company will no longer exist. Any debts which remain outstanding at this point will be essentially written off unless the director has provided a personal guarantee. In this instance the personal guarantee will crystallise and the director will become personally responsible for any debt secured in this way.

Alternatives to Compulsory Liquidation

If you have received a winding-up petition on behalf of a disgruntled creditor, your company has seven days to respond or the courts will look to issue a Winding Up Order which is, effectively, an order to shut down your company.

As a company director, you must take action immediately on receiving the WUP if you wish to save your business and prevent it from being forced into compulsory liquidation. At this stage it is too late to place the company into Creditors’ Voluntary Liquidation (CVL), and you are no longer able to sell the company or any of its assets.

However, a Company Voluntary Arrangement (CVA) or placing the company into administration may be available options depending on your company circumstances and likely long-term viability. Alternatively, you could also take steps to defend the petition if you dispute the debt being chased.

If you are unable to pay the amount required to settle the WUP or negotiate a rescue solution, your company will be wound up by the courts and your conduct as a director will be investigated by the court-appointed Official Receiver or liquidator.

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