Compulsory Liquidation

Compulsory liquidation involves the court making an order for the company to be wound up on the petition of an appropriate person, usually a creditor.

Topic

Summary
What is the nature of the procedure?

 

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.

 

Procedure

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.

Who can commence the procedure?

Compulsory liquidation commences when a petition to wind up a company is presented at court by a petitioner.

Are there any corporate thresholds?

N/A.

Is there a moratorium?

Upon a winding up order being granted by the court, there is a stay on commencing or continuing with proceedings by or against the company without leave of the court.

Who is in charge? The Official Receiver, as the liquidator, or the alternative liquidator (if one has been appointed by the creditors at a creditors' meeting). All powers of the directors cease upon appointment of the Official Receiver as liquidator.
How are they selected, including voting thresholds?

The Official Receiver is automatically appointed as the liquidator following the court making the winding up order. To appoint an alternative liquidator at a creditors' meeting, there must be a quorum of at least one creditor present, in person or by proxy, who is entitled to vote.

Is there a plan? Who votes and what are the thresholds?

There is no plan, as such. The liquidator’s role is to collect the company’s assets, realise them and distribute them to the company’s creditors.

 What can the plan do?
N/A.
If not approved by the necessary majorities, can the plan still be approved? N/A.
What is the exit route? Dissolution of the company.
What is the priority of payments?
  1. Fixed charge holders
  2. Expenses of the liquidator
  3. Preferential creditors
  4. Floating charge holders
  5. Unsecured creditors (pro rata)
  6. Shareholders receive surplus (if any), but unlikely as company is insolvent
Is there a creditors committee?

Yes, the creditors may form a liquidation committee. This committee is made up of at least three (but not more than five) creditors.

The committee assists the liquidator and can, as an alternative to the court, sanction the exercise of some of the liquidator’s powers, including:

  • carrying on the business of the company, but only to the extent necessary for the beneficial winding up of the company
  • commencing or defending court proceedings in the name of the company, and
  • paying debts and compromising claims.
How involved is the court?

The court is moderately involved. The court:

  • makes the initial winding up order,
  • makes any validation orders following the presentation of the petition, and
  • sanctions particular actions of the liquidator.
How is the administrator paid? The rate of remuneration is set by the court initially. If a liquidation committee is formed it then approves the liquidator's remuneration.
Are there any general comments on the use of this procedure? None.

This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.