Compulsory Liquidation (CWU)

Introduction

Compulsory liquidation (or Winding Up by the Court) is instituted by a Winding Up Order made by the Court usually upon the petition of a creditor (or creditors), the directors, the company or an individual shareholder. There are a number of possible grounds for making a Winding Up Order with the most common being that the company is insolvent and unable to pay its debts or it is proved to the Court that the company’s liabilities are greater than its assets. Insolvency can be established by failure to comply with a statutory demand requiring payment within 28 days or if an execution of a judgement debt is unsatisfied.

Petition

The petition must be presented by the petitioner in the High Court Chancery Division (including regional district registries) or alternatively in a County Court having insolvency jurisdiction (with paid up capital and registered office location restrictions).

When a petition is presented a date and time for the hearing thereof is fixed and the petition must then be served at the company’s registered office (unless the petitioner is the company). The petition has to be Gazetted not less than 7 days after it has been served and not less than 7 days before the hearing.

A petitioning creditor may apply to the Court for a provisional Liquidator to be appointed if it is felt that the company’s assets might be in jeopardy in the period after the presentation of the petition in order to secure the company’s assets prior to the petition hearing.

Winding Up Order

Upon the making of a Winding Up Order in most cases the Official Receiver is immediately appointed Liquidator. The Official Receiver is an Officer of the Court and employed by the Insolvency Service, an executive agency within the DBIS. Following a Winding Up Order no action can be taken, commenced or proceeded with against the company without the leave of the Court.

A compulsory liquidation is deemed to have commenced from the date of the presentation of the petition (unless a special resolution had been passed before that date for voluntary liquidation). As such, any disposition of the company’s property after the presentation of the petition is void, unless the Court orders otherwise.

The powers of the directors cease and the Official Receiver as Liquidator immediately takes control of the company’s assets.

Procedure

First Creditors’ Meeting

Within 3 months of the Winding Up Order the Official Receiver is required to decide whether to call meetings of creditors and contributories (members) for the purpose of electing an Insolvency Practitioner as Liquidator. If he decides not to then notice must be given within 4 months to the Court and creditors. Such meeting must be held if requested by 25% in value of the creditors within 3 months of the request. For a resolution of either meeting to be valid it must be passed by a majority in value of those voting. In the event of different persons being nominated at the creditors’ meeting a straight majority in value of creditors voting will determine which Insolvency Practitioner is appointed Liquidator.

Once the appointment of Liquidator has been resolved the creditors may, if they wish, appoint a Liquidation Committee comprising a minimum of 3 and maximum of 5 creditors whose functions include approving payment of a class of creditors in full, approving compromises with debtors or creditors, receiving progress reports from the Liquidator and fixing the bases of the Liquidator’s fees and certain disbursements.

Where an Insolvency Practitioner is Liquidator but there is no Liquidation Committee then the functions conferred thereon are vested in the Secretary of State for DBIS and may be exercised by the Official Receiver.

Liquidator

At any time that the Official Receiver is Liquidator he may apply to the Secretary of State for the appointment of an Insolvency Practitioner in his place usually either at the request of a major creditor or from a rota of lPs in the locality. Any lP appointed Liquidator must give notice to Companies House, the creditors and contributories and Gazette his appointment.

A wide range of powers are afforded to the Liquidator to facilitate realisation of the company’s assets, bring or defend legal actions, examine antecedent transactions and agree creditors’ claims.

Reports are sent to creditors in accordance with statute.

The Officiai Receiver retains the responsibility for investigating the conduct of the directors and other officers as well as any other investigation work required.

The Liquidator is required to obtain formal sanction from the Secretary of State in the absence of any Liquidation Committee to exercise certain powers such as bringing or defending any action or legal proceedings in the name of the company, paying any class of creditors in full and to make any compromise or arrangement with creditors having a claim against the company.

Final Meeting

Upon completion of the compulsory liquidation the Liquidator is required to report to creditors on the outcome thereof and to call and convene a meeting of creditors to seek his release, notice of which must be sent to all creditors, the Official Receiver and Gazetted. The result of the meeting must be notified to the Court and the Official Receiver and final receipts and payments account sent to the Secretary of State of DBIS.

Dissolution

The company will normally be automatically dissolved 3 months after Companies House has received notice that the final meeting has been held. The company's books and records may be destroyed upon the authorisation of the Official Receiver.

Compulsory Liquidation Following Administration

Where a compulsory liquidation immediately follows an Administration the Court may appoint the former Administrator to act as Liquidator. in such cases the Official Receiver does not become Liquidator but retains an investigative duty.