A compulsory liquidation, otherwise known as Compulsory Winding-Up is a liquidation ordered by the Court, usually upon the issue of a Winding -Up petition by a creditor, the company itself or a shareholder.

A company may be wound up if:

• The company has passed a resolution that the company be wound-up by the Court The company (being a public company which was registered as such on incorporation) has not been issued with a certificate under Section 117 of the Companies Act (Public Company Share Capital Requirements) and more than a year has expired since it was so registered It is an old public company, within the meaning of the Consequential Provisions Act The company does not commence its business within a year from its incorporation or suspends its business for a year Except in a case of a private company limited by shares by guarantee, the number of members is reduced below two The company is unable to pay its debts The Court is of the opinion that it is just and equitable that the company should be wound-up

A Winding-Up Petition may also be presented by the Secretary of State for Trade and Industry on the grounds of public interest.

A company is deemed unable to pay its debts if:

• A creditor (by assignment or otherwise) to whom the Company is indebted in a sum exceeding £750 has served on the company a statutory demand requiring the company to pay the money due and the company has for three weeks after service failed to pay the sum or to secure or compound it to the reasonable satisfaction of the creditor

Or

• A judgement has been obtained by a creditor and the execution of the Judgement by way of Fi-Fa is returned unsatisfied in whole or in part

Or

• It is proved to the satisfaction of the Court that the company is unable to pay its debts as they fall due

Or

• 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, taking into account its contingent and prospective liabilities

Summary of Compulsory Liquidation Procedure

Issue of Petition	This is usually presented to the Court by a creditor on the grounds of the company's insolvency which is normally proven by the failure of the company to satisfy a Statutory Demand. It may however also be presented by the company itself of the shareholders. A hearing date will be given by the Court.
Service	The Petition must be served on the company
Advertisement	After the expiration of seven days after service on the company the Petition must be advertised, normally in The London Gazette
Winding-Up Order	Unless successfully disputed at the hearing, a Winding-Up Order is made by the Court. The date of the commencement of the liquidation is deemed to be when the Petition is presented and dispositions after that date are void. When a Winding-Up Order has been made or a Provisional Liquidator has been appointed, no action or proceeding may be presented or commenced against the company or its property except by the leave of the Court.
The Official Receiver	The Official Receiver becomes Liquidator and has a duty to investigate the company's affairs and send a report to the creditors. The Official Receiver should advertise the Order in The London Gazette and any appropriate newspapers
Conduct of the Liquidation	If the assets are likely to cover the administrative costs, the Official Receiver will call a creditors meeting to appoint a Liquidator other than himself who will then take control of the realisation of assets, the agreement of creditors' claims and the distribution of funds by way of dividend.