One of eight grounds must be satisfied for compulsory liquidation. The two most common grounds are that a company is unable to pay debts or that it is just and equitable for the company to be wound up.
The procedure is commenced by a petition presented at court.
The petitioner can be the company, its directors or a creditor. The Secretary of State is also entitled to present a petition where it is in the public interest to wind up a company (eg where a company is operating a pyramid scheme).
The petitioner must serve the petition on the company. The company may file evidence to oppose the petition.
Following the presentation of the petition, the company cannot, unless the court orders otherwise (via a validation order), dispose of any property or transfer any of its shares.
The court has discretion to dismiss the petition or make a winding up order. The court will generally consider the wishes of all creditors and if the majority support the petition, the court will normally make the winding up order.
Upon the court granting a winding up order, the Official Receiver (a Government official) becomes the liquidator and the powers of the directors cease. The Official Receiver will report the state of the company's affairs to its creditors and will invite them to submit a proof of debt form.
The Official Receiver may, on its own behalf or at the request of the creditors, convene a creditors' meeting. If such a meeting is to be held, it must occur within 12 weeks of the winding up order being made. At this meeting the creditors may appoint an alternative liquidator and/or establish a liquidation committee.
The liquidator collects the company's assets, realises them and distributes the proceeds in the prescribed order. Once all distributions have been made a final meeting of the creditors is held and the company will be dissolved three months later.