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Insolvency Procedures Series #2 - Compulsory Liquidation

10th November 2022


Peter Worrall


Charles Russell Speechlys LLP

What is compulsory liquidation?

  • Compulsory liquidation is a court-based procedure through which the assets of a company are realised and distributed to the creditors (in order of priority)
  • The process is started by the filing of a petition at court (usually by a creditor). A judge then decides at a hearing whether it is appropriate to make a winding-up order

Grounds for winding-up:

The grounds are set out in section 122(1) of the Insolvency Act 1986, namely:

  • The company subject to the petition is unable to pay its debts as and when they fall due; and
  • The court is of the opinion that it is just and equitable that the company should be wound up.

What constitutes an “inability to pay debts”?

  • A creditor to whom the company owes £750 or more has served on the company by leaving it at the company’s registered office a written demand in the prescribed form, requiring the company to pay the sum due, and the company has neglected to pay the sum or to secure or compound for it to the reasonable satisfaction of the creditor within 3 weeks thereafter. This is typically by way of a statutory demand but a notice of intention to present a winding-up petition will also suffice.
  • Execution or other process issued on a judgment debt has been returned unsatisfied in whole or in part; or
  • The company is unable to pay its debts as they fall due. A company is also deemed unable to pay its debts if it is proved to the satisfaction of the court that the value of the company’s assets is less than the amount of its liabilities (including contingent and prospective liabilities)

Who can present a winding-up petition?

Section 124 of the Insolvency Act 1986 contains a non-exhaustive list of parties who may present a winding-up petition which includes:

  • The company itself
  • The directors (acting collectively not individually)
  • Any creditor (including contingent, prospective and secured creditors.

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