Court-Ordered/Compulsory Liquidation Explained

Court-Ordered or Compulsory Liquidation, also known as WUC, is a formal process that leads to the forced shutdown of a company. Frequently, creditors who have not been remunerated initiate this process by submitting a Winding Up Petition (WUP) to the court. A WUP notifies a company that a petition has been lodged to compel it to close down and liquidate its property.

 

Understanding the Duration of Forced Liquidation

The period between the issue of a WUP and the appointment of an Official Receiver can be abbreviated. Though, the compelled liquidation process potentially stretches over a longer compared to a CVL.

This extended situation may not only affect you as a director but also impact your employees. Under compulsory liquidation, staff members might have to wait up to a year to receive any redundancy owed. As a company director, if you’ve been on the company’s payroll for at least two years, you might qualify for redundancy.

 

Who Initiates Compulsory Liquidation?

Primarily initiated by an unsatisfied creditor and later mandated by the court, the compulsory liquidation is not a snap process. Any creditor who hasn’t received their payment could file a petition to wind up your business.

Reaching the point of compulsory liquidation takes time, and a creditor is likely to try various less severe debt-collection methods before lodging a WUP. These could range from less formal discussions to a County Court Judgment (CCJ) or issuing a statutory demand.

 

Why a Creditor Might Push for Corporate Insolvency?

Compulsory liquidation is the most extreme step a creditor can take against a company that hasn’t fulfilled its debt obligations. Despite the severe implications, the creditor usually resorts to winding up a company in a desperate attempt to recoup their debt rather than out of spite.

If a debt has been outstanding for a long duration, a creditor may consider that compelling liquidation may offer them the best chance to recover some of their money when the company’s assets are auctioned. However, this is only permissible if the company possesses sufficient assets or funds for distribution.