Compulsory liquidation can occur as a result of the company being insolvent
. The process will take place when a creditor has still not received the payments owed after previously attempting to collect payments from the company. In this case, the company may end up being liquidated compulsorily.
The compulsory liquidation process begins when a creditor petitions to a court in order for the company to be liquidated. This usually occurs when the company owes more than 750. In order to petition to a court, the creditor must have previously tried to collect the debt from the company. The petition will only be accepted if the debt is over 750, if there is evidence that the creditor has tried to collect the debt and if the company is unable to pay it.
Petitioning to the court can be a disadvantage for some creditors, as it can be costly. Company directors are also able to petition to a court if they wish, but this must be done by a group of company directors and not just a single director. Once the petition has been accepted, the compulsory liquidation will take place. A court hearing will be arranged and the court will appoint a liquidator so that the company can be investigated thoroughly. If it is discovered that a company has been trading wrongfully or committed any other offences then legal action can be taken.
Compulsory liquidation can be disheartening for companies and particularly damaging for company directors, who will need to appear in court. Compulsory liquidation can be avoided by recognising signs of insolvency early on and looking for alternative routes in which creditors can receive any payments they are owed. Taking an alternative route may save the company and allow it to get back on its feet.