Compulsory Liquidation

Compulsory Liquidation

In the UK there are currently 3 types of liquidation. In this section of the company advice site we shall be examining “Compulsory Liquidation” or “Compulsory Winding Up”, as it is also known.

Compulsory Liquidation can be used when a winding up order is made by a court for the company to be closed down because a creditor is owed at least £750 and the debt remains unpaid at the date of the court hearing. It can cost around £1000 to go through the winding up process. This amount can be increased up to £2500 if a professional legal advisor assists with the process. Please note that court fees, petition costs, company search and swearing fees are unavoidable.

OR

If a director can't afford a CVL – Creditors Voluntary Liquidation of the company because of the lack of money available to pay liquidators costs and fees which are usually around £5000 plus VAT for a Licensed Insolvency Practitioner to take on the case.

What are the grounds for Compulsory Liquidation?

The company is unable to pays its debts. This can be proved in one of 4 ways:

1. A Statutory Demand has been served giving the company 21 days to pay the debt. Please note that the debt must exceed £750 and that a number of different creditors may not combine their debts to reach the statutory limit. The statutory demand must be left at the companies registered office.
2. The debt must be for a liquidated amount that is due and payable. It can not be for an amount that is payable in the future.
3. The debt must not be on disputed grounds.
4. Neither must the debt be reduced below £750 by a genuine cross claim or set off.
5. There has been an unsatisfied judgement, decree or order in favour of a creditor of the company.
6. The court is satisfied the company is unable to pay its debts as they fall due or it is proved to the satisfaction of the court that the value of the company's assets is less than the amount of its liabilities, taking into account its contingent and prospective liabilities. Please note that under this method the creditor will not need to wait 21 days using the statutory demand process.
7. The court is satisfied that the company can not carry its main object.
8. The court is satisfied that the company has a deadlock in it management.