Compulsory Liquidations are different from other liquidations in so far as they are court-based procedures which require an Order of Court to formally commence the winding-up. The purpose of this guide is to demonstrate the procedure from initiation to appointment, and how this differs from a CVL which can be a quicker, more effective way to deal with a Company’s affairs than via a winding-up through the Court.
For your information, please see our CVL page for comparative timescales and implications to your Company and business. If you are concerned about receipt of a petition, contact Parker Andrews now to discuss your scenario.
Procedure to appointment
The process begins with the presentation of a winding-up petition at Court. This is usually undertaken by a creditor that has not been able to recover the balance due despite several attempts to recover it and is the final stage in the recovery procedure.
When a petition is presented to Court, a hearing will be scheduled several weeks in later and notice of the petition (together with the hearing date) provided to the Company. The petition will be advertised in the London Gazette a minimum of 15 days prior to the hearing. Banks, creditors and other parties that have access to this information may freeze bank accounts and/or withhold further supply of goods immediately.
Generally speaking, service of a petition will usually make it more difficult to seek alternative rescue methods – it is therefore imperative that you seek PROFESSIONAL ADVICE as soon as possible.
Matters to consider IMMEDIATELY
In addition to the above, if the petitioning creditor has grounds to believe that the Company’s assets are at risk of being dissipated, it may seek an immediate appointment of a Provisional Liquidator. This will result in the appointment of an Insolvency Practitioner to deal with, recover and control the Company’s assets pending the formal appointment of a Liquidator at a later date. This could occur without notice to the Company.
The powers of the Company to enter into transactions between petition and hearing date are severely curtailed. For any material transactions, the Company will need to seek a “validation order” because, as detailed in section 127 of the Insolvency Act 1986, a disposition of assets between the petition and winding-up order are rendered void. You should seek immediate advice if you consider this may an issue as any future liquidator could seek to recover the proceeds of the transaction from the recipient, including any individual.
Once a petition has been filed at Court, a hearing must be held, even if the debt has been paid. If a Liquidator in a CVL has been appointed in the intervening period, representation can be arranged at court to withdraw the petition on the basis that the Company has now already been placed into Liquidation, although the Court does retain the power to wind-up the Company even if a Liquidator has been appointed via this route.
Furthermore, the existence of a petition hearing means other creditors are able to support or substitute their debt into place of the creditor, meaning even making arrangements to satisfy the debt of the petitioning creditor may not avoid the Company being wound up.
Winding-up Order & Official Receiver (“OR”)
Should a winding-up order be made, the Company will be placed into Compulsory Liquidation on the same hearing date the OR, a civil servant, will become Receiver Manager and will compel the Directors to provide all relevant information to them, including details of all assets, creditors, debtors and complete an extensive questionnaire on the Company’s trading history. It is likely that the Directors will also be required to attend an interview.
The OR will consider the Company’s asset position and how best to deal with the estate. Within 12 weeks of the winding-up, the OR will decide whether to continue to realise assets in house or pass the matter to an Insolvency Practitioner. Creditors may also seek to appoint their own choice of IP during this process.
Considerations for Directors
The OR and their staff will be conducting the investigations into the Company’s affairs and the conduct of the Company’s directors. If it can be shown that they have not dealt with the Company’s affairs in an appropriate fashion, legal action could be pursued against the relevant directors seeking their disqualification to act as Directors in the future. Further claims may also arise which seek to recover funds from you in respect of any transactions which contravene the provisions of the Companies Act 2006, Insolvency Act 1986 and other relevant legislation.
The timeline between petition, winding-up Order and appointment of an Insolvency Practitioner can take in excess of 6 months. However, the restrictions regarding transactions will be applicable from the date of the petition. You should therefore consider your options on receipt of a winding-up petition WITHOUT DELAY by contacting a member the Parker Andrews team on [email protected]
The procedure outlined here relates to creditor-initiated petitions. This does not include any reference to petitions brought by the Insolvency Service under grounds of public interest
Seek Help Today
The sooner professional advice is sought, the more options there will be to rescue the business.
Even if you have received a petition, we can assist you and your Company and create a solution to help rescue and recover your business. We can also offer advice and assistance regarding dismissal of petitions and seeking to deal with the Company’s affairs via a CVL or Administration.