What is it?

This is when a company is unable to pay its debts and is forced into liquidation as opposed to going into liquidation voluntarily.

Generally, this is the last resort for any creditor and you will be issued with something called a winding-up petition, this is generally the last step in a long and drawn-out effort by a creditor to recover money that is owed.

Anyone who is owed more than £750 can apply for a winding-up petition against your company. You will have had plenty of chances to settle the debt before a petition is issued and once it is a court date is set.

A winding-up petition won’t come out of the blue to the director. It will be the last stop on the train line after phone calls, demands, legal letters, and maybe bailiffs.

Given the choice, I strongly advise that if you choose to go into liquidation voluntarily as opposed to being forced. This process will give you more time to get a better outcome for everyone involved as well as having more control.

In a compulsory liquidation, an in-depth directors investigation will be completed by the official receiver.

They will look at things such as:

  • Have you traded wrongfully or fraudulently?
  • Did you take credit without any chance of paying it back?
  • Have you failed to submit accounts?

If it’s uncovered that you have acted inappropriately as a director you may be held personally responsible for some or all of the company’s debts.

The risks associated with compulsory liquidation really depend on how well you have run the company. If you are worried about certain aspects it’s very important that you take advice early.

If you are facing the threat of compulsory liquidation you still have some options:

Currently, there is a restriction on winding up petitions and statutory demand until 31st March 2021.

As always please ask any questions or send me a DM.

All the best,

1st Business Rescue

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