Compulsory Liquidation is usually where a creditor has petitioned the Court for the winding up of the company. The official receiver becomes the liquidator but normally appoints an insolvency practitioner to carry out the liquidation. This is also known as a 'compulsory winding up'.
A Compulsory Liquidation is a legal process by which a liquidator is appointed by order of the court to wind-up a limited company and is usually commenced by a creditor.
A petition is made to the court to commence a Compulsory Liquidation.
A winding-up-petition (WUP) is very serious and should never be ignored. One immediate consequence of a WUP is the freezing of bank accounts making trading virtually impossible and it can also trigger a reaction from other creditors. Company directors faced with a WUP should immediately seek advice from an Insolvency Practitioner or the Compulsory Liquidation may be undertaken.
If no steps are taken, a winding up order ensues and would stop the company from trading if it had not already done so. All assets of the company, including book debts, would be realised and proceeds of these would fund the cost of the Compulsory Liquidation. Any excess funds would be available as a dividend to creditors, payable in the order of priority.
The affairs of the company will normally be investigated by the Official Receiver in a Compulsory Liquidation.