We have talked through some of the stages of the winding up process including unpaid county court judgments, and winding up petitions in other pages. But what happens when the company enters compulsory liquidation? It can be a difficult and stressful time for directors. Not least because they lose much control of the process. We’ve drawn together some FAQ’s about compulsory liquidation that directors most commonly ask here, which may help you understand the process a little bit better.
When the judge puts the company into liquidation at the court hearing, your powers as director of the company will cease. Essentially, at this point, you no longer have control of the company, its assets or its property.
At the hearing, the court will appoint an Official Receiver (OR). The OR is a civil servant and an officer of the High Court. They will manage and administrate the early stages of the process. If the OR deems it appropriate, or if a sufficient value of creditors request it, a liquidator will also be appointed.
Firstly, don’t attempt to trade as the liquidated company. This is an offence, and you would likely be held personally responsible for any debts accrued or any assets (such as cash, or stock) that have decreased in value.
Normally, within 7 days of the order being made, the OR’s office will be in contact with you. They’ll make arrangements to set up an interview. You’ll need to ensure they have all the company’s books, records and paperwork. You’ll also need to provide details of all the company’s assets and liabilities, especially creditor details.
The OR’s staff will formally interview you in relation to the above. After the interview, you’ll be asked to sign a declaration of truth. There are a couple of very important points here:
In all compulsory liquidations, you’ll always initially deal with the OR’s office. The OR will interview the directors, and review your company’s books and records.
Within the first month, the OR will notify your creditors. They’ll advise them that the company is being wound up and ask them to submit their claims for repayment.
If there’s a majority creditor, they can request that a liquidator of their choosing is appointed. If the OR agrees, an application will be made to the Secretary of State for the liquidator’s appointment. The liquidator is normally then appointed as a matter of course.
In cases where there isn’t a majority creditor (or one that expresses a preferred liquidator), the OR may deem it appropriate to either deal with the liquidation solely themselves, or they may choose to call a creditors’ meeting. Your creditors will vote on who they want as liquidator in this meeting.
If a liquidator is appointed, most of your dealings from that point on will be with the liquidator’s office. However, the OR may on some occasions still require further information to assist their investigations into directors’ conduct.
First priority will be given to the liquidator. Following that, any secured (such as a bank debenture) and preferential creditors (such as elements of employee pay and the Redundancy Payments Service) will be dealt with. Finally, unsecured creditors.
If you have outstanding personal guarantees, you will need to reach an agreement with those creditors separately for repayment.
The courts can order you to personally contribute to the company’s losses, if the OR or the liquidator can prove that as directors you were legally at fault for the company’s insolvency.
Any remaining staff of the company will be automatically made redundant as a result of the legal status of the company. This means the company can’t employ any staff (and it shouldn’t be trading). Your staff may be able to recover money due to them from national insurance fund. They can find more detailed information in our guide for employees being made redundant in liquidation. You can find more information in our guide for directors.
If directors were salaried they may also have potential claims for money owed to them. This could partly be paid out of the national insurance fund. See our guide here.
Avoid compulsory liquidation if you can! In almost all cases, you will not know who will be appointed liquidator of your company in a compulsory liquidation until it’s already in liquidation. If your company is going to be liquidated, you can manage the liquidation process much better by working with an insolvency practice pre-liquidation. See our article on voluntary liquidation vs compulsory liquidation to understand how this works in practice.
Have we answered all of your questions? If you would prefer to talk this through with one of our business rescue experts, use our booking system to set an appointment for a meeting or contact one of our expert advisors directly.