Businesses that find themselves in severe financial difficulties can often feel like they’re being backed up against a wall. The number of potential avenues out of these situations seems to continually decrease, until there are just one or two left.
When things have reached a certain point, it’s possible that your company can be forced into liquidation. Here, we take a closer look at that process, known as Compulsory Liquidation, to give you a better picture of what it might look like.
Compulsory liquidation
Compulsory liquidation is a situation in which your company will be forced to wind up by a court. Often, this will be because the company is insolvent and cannot reasonably be expected to return to a position to repay its debts.
Compulsory liquidations are just one of many options available to businesses in these kinds of situations, and it’s rarely the most beneficial option available. It’s imperative that you speak with an insolvency practitioner such as Chamberlain & Co as early on as possible, so that you can act while you still have better potential solutions available to you.
The process
There are several steps that will go into facilitating the compulsory liquidation process.
Winding up petition
First of all, the concerned party will need to petition the court for a winding-up order. This will usually be due to concerns surrounding debts, but it could be due to other difficulties or disagreements.
Court hearing
If the company in question does not dispute the petition, and cannot prove its solvency, then the court may hold a hearing to consider the petition. If the court decides that liquidation is the best or only reasonable route forward, it may grant the winding-up order.
OR and IP appointment
To facilitate the process, the court will likely appoint an Official Receiver, who may in turn appoint an Insolvency Practitioner. This party will be responsible for the liquidation process.
Investigation
The liquidator will then typically conduct an investigation into the company, attempting to determine the root causes behind insolvency. If these are deemed to be criminal in nature – such as due to fraud or improper trading – then they may choose to involve the relevant authorities.
Dissolution
Once the investigation has been completed, all that’s left to do is dissolve the company. Assets will need to be sold off and distributed to the appropriate creditors, and then an application to strike off the company will be sent to Companies House. Once this has happened, the company will essentially no longer exist, and will no longer be able to trade.
A compulsory liquidation will rarely provide the best benefits for a company facing financial difficulties, and really should be treated as a last-ditch solution. It’s important that you speak with an insolvency practitioner as early on as possible, so that you can look into other potential ways to restructure and potentially save your company. If you tackle the issue early enough, you may be able to continue trading, or at the very least retain some level of control over the dissolution process.
