This is a liquidation process which is dealt with through the Courts. It may be initiated by a number of parties, particularly:
- A Director
- A shareholder
- A creditor owed more than £750
The process starts with the serving of a Winding -Up Petition. This is usually heard in Court 6-8 weeks later. Read the Petition carefully to ensure that you do not miss the date.
When the Petition is advertised, the Company’s bank account may be frozen. The existence of the Petition could be logged against any property owned by the Company, preventing it from being sold.
When the Petition is issued, take the matter seriously. Is there any reason for not paying the debt? If the only reason is the lack of funds, the Company is insolvent in that it cannot pay its debts as they fall due. The other element of the definition is the fact that liabilities exceed assets.
You may decide to pre-empt the Compulsory Liquidation by initiating the process of a Creditors’ Voluntary Liquidation (“CVL”). This tends to be considered more favourably by creditors, as a Compulsory Liquidation is viewed as having been forced upon you while a CVL is the way a responsible Director would choose to close a Company.
If the Petition is heard in Court, a Winding up Order is granted. The Official Receiver, a Civil Servant employed by the Insolvency Service, will decide whether to deal with the liquidation himself, or to appoint an Insolvency Practitioner (“IP”). If there are assets, he will appoint an IP as Liquidator.
The Liquidator’s duties involve:
- selling the assets
- collecting the book debts
- agreeing creditor claims
- distributing the funds
He will not be responsible for investigating the actions of the Directors. This duty will remain with the Official Receiver.
What could happen to me as a Director?
The Official Receiver will investigate your actions as Director, looking at various possible offences. These include:
Wrongful trading – trading when you knew, or ought to have known, that the Company was insolvent
Preference – have you treated one creditor better than another, particularly if the preferred creditor is a member of your family or holds a personal guarantee from you
Fraudulent trading – for example, taking deposits from the public knowing that you will never supply the goods.
A Director faces a ban from being a Director for between 2 and 15 years if his actions in the time leading up to the liquidation warrant it.
What will happen to my employees?
Employees’ contracts of employment are automatically terminated with the granting of the Winding up Order, if they had not been dismissed previously. Claims can be lodged with the Redundancy Payments Service (“RPS”), and payments will be made direct to employees in respect of arrears of wages, holiday pay, redundancy and pay in lieu of notice. The RPS will then stand in the shoes of the employees for receipt of any dividends.