UK Liquidation

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Compulsory liquidation a guide for unsecured creditors Association of Business Recovery Professionals

Once a winding-up order is made, the Official Receiver becomes the liquidator

COMPULSORY LIQUIDATION

Compulsory liquidation occurs when a company is wound up by an order of the court.

A licensed insolvency practitioner has given you this because you, or your business, may be owed money by a company that is in compulsory liquidation and the liquidator is not the Official Receiver.

This guide aims to help you understand your rights as a creditor and to describe how best these rights can be exercised. It is intended to relate only to England and Wales. It is not an exhaustive statement of the relevant law or a substitute for specific professional or legal advice.

We have made every effort to ensure the guide is accurate, but R3 cannot accept responsibility for the consequences of any action you take in reliance on its contents. If, having read the guide, you remain in any
doubt about your rights, you should consult a licensed insolvency practitioner or solicitor.

Depending on the circumstances of the case, creditors who play an active role in an insolvency can make a significant difference to how much the insolvency practitioner will be able to recover for them. We hope that you will read this guide carefully and consider whether taking an active role as a creditor in this case could benefit you or your business.

COMPULSORY LIQUIDATION

A compulsory liquidation occurs when a company is wound up by an order of the court

What is a compulsory liquidation?

A compulsory liquidation occurs when a company is wound up by an order of the court. The purpose of the winding-up order is to appoint a responsible person who has a duty to collect the company’s assets and distribute them to its creditors in accordance with the law.

When does a company find itself in compulsory liquidation?

The most common circumstances are when a petition is presented to the court on the grounds that the company is unable to pay its debts, or it is proved to the court that the company’s liabilities are greater than its assets.

Who can present a petition to wind up the company?

Amongst others, a creditor, the company itself, or the Department of Trade & Industry (DTI) can present a  petition to the court to wind up the company.

A petitioning creditor may feel that the company's assets might be in jeopardy in the period after presentation of the petition. If so, he may apply to the court for an order to appoint a provisional liquidator whose function is to ensure the security of the company's assets between the petition date and the hearing (usually several
weeks later).

Who deals with the company's affairs?

Once a winding-up order is made, the Official Receiver becomes the liquidator. The Official Receiver is a civil servant and an officer of the court. The Official Receiver must decide within twelve weeks of the winding-up order whether to call a meeting of creditors to appoint a licensed insolvency practitioner to act as liquidator. In certain circumstances the DTI or the court may make such an appointment. This guide assumes that a licensed insolvency practitioner has been appointed liquidator.

What are the consequences of a winding-up order?

Any disposition of the company's property after the presentation of the petition is void, unless the court orders otherwise. After the liquidation has commenced, any legal action against the company is stayed, except with leave of the court. In addition, no new legal proceedings may be brought against the company without leave of the court.

The powers of the directors cease and the liquidator takes control of the company and its assets. Secured and
preferential creditors are paid before unsecured creditors The liquidator will pay a dividend to unsecured creditors if enough funds have been realised from the company’s assets after paying costs incurred Six months after writing off the debt you can claim VAT Bad Debt Relief from HM Customs and Excise.

Article Courtesy: http://www.r3.org.uk/media/documents/publications/professional/Creditors_CL.pdf
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