Compulsory Liquidation > What is Compulsory Liquidation?

Compulsory Liquidation > What is Compulsory Liquidation?

What types of liquidation are there?

Members' voluntary liquidation (or members' voluntary winding up) - this is when the shareholders of a company decide to put it into liquidation, and there are enough assets to pay all the debts of the company, i.e. the company is solvent.

Creditors' voluntary liquidation (or creditors' voluntary winding up) - this is when the shareholders of a company decide to put the company into liquidation, but there are not enough assets to pay all the creditors, i.e. the company is insolvent.

Compulsory liquidation (or compulsory winding up) - this is when the court makes an order for the company to be wound up (a 'winding-up order') on the petition of an appropriate person. If there is more than one director, all the directors must jointly present the winding-up petition - a single director cannot present a winding-up petition.

If you are a director or a shareholder and you are also a creditor of your company, you may wish to present a winding-up petition on the grounds that the company cannot pay its debts. Please read our publication 'Dealing with debt - How to wind up a company that owes you money' for more information.

Where can I get advice about liquidation?

Before you take any action to put a company into liquidation, you should obtain your own legal or financial advice about this procedure and any other options available to you. You can get advice from your local Citizens Advice Bureau, a solicitor, a qualified accountant, an authorised insolvency practitioner, any reputable financial adviser or a debt advice centre.

What are the alternatives to liquidation?

There are 3 possibilities:
Informal arrangement - the company could consider writing to all its creditors to see if a mutually acceptable agreement can be reached. It is advisable to include a timetable of when payments will be made.

Company voluntary arrangement (CVA) - this is a formal version of the arrangement described above. The directors would need to apply to the court with the help of an authorised insolvency practitioner, who would supervise the arrangement and pay the creditors in line with the accepted proposals.

Administration - this is a court procedure that gives the company some breathing space from any action by creditors. A court can grant an administration order to enable the company to:
survive, in whole or in part, as an ongoing business;
organise a voluntary arrangement or compromise with its creditors;
get a better realisation of assets than would be possible if the company went into liquidation.

The procedure is managed by an administrator, who must be an authorised insolvency practitioner.

Further Information
You can find further information in the publication 'Dealing with Debt - How to wind up my own company'

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Full details can be viewed at http://www.insolvency.gov.uk