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Compulsory Liquidation

If you are caught in the process of compulsory liquidation and feel there is nowhere to turn for help, we can offer sound advice and help you find the best outcome.

When a company fails to pay its debts, creditors can petition the courts to have your company placed in compulsory liquidation.

This version of liquidation is the closure of your business against your will and usually only happens when creditors believe they have exhausted all other avenues.

Often, many attempts will have been taken to retrieve money owed and this will be the final stage of debt recovery.

The liquidation of your company will involve liquidating the assets so creditors can be paid – and your company wound up.

If you find yourself caught in the process of compulsory liquidation and feel like there is nowhere to turn for help, the Future Strategy can help guide you and give you the best possible of a better outcome.

It is important that you seek help as a matter of urgency, otherwise the small window of time when we can help you could quickly shut.

What is compulsory liquidation?

Compulsory Liquidation is the process used by a creditor (someone who is owed money) to force an insolvent company into liquidation – in an effort to make it payback that debt.

The process is typically started by outstanding creditors of a limited company to which a business owes money through a court order known as a Winding Up Petition (WUP). 

The process ends with the company being forcibly shut down.

Sometimes known as winding up, compulsory liquidation is a procedure under the Insolvency Act and is usually led by a creditor who is pursuing the company for money.

It’s worth noting that even after the compulsory liquidation process has started, there may still be enough time to implement Creditors Voluntary Liquidation (CVL), though this type of liquidation is started by the company’s directors rather than by its creditors.

These kinds of options are where Future Strategy can help you secure the best result. If you get in touch with our team today, we can talk you through what may be possible.

What happens during a compulsory liquidation?

The process goes through the following steps:

  • Winding Up Petition. The first step of compulsory liquidation, which is sometimes referred to as a WUC, is for a creditor to issue a WUP against a company. 
  • Winding Up Order. Next, the petition will be heard by a Judge who will then decide the next step; if the court is satisfied that the company should be liquidated, they will issue a Winding Up Order. If trading hasn’t stopped by this point, it must now.
  • Official Receiver Appointed. Sometimes known as a liquidator, the receiver will take over control of the company and the day-to-day running of the business. 
  • Assets Are Sold Off. Stock, vehicles, property, or machinery will be liquidated so creditors and debts can be paid off as much as possible. This includes any cash in the company bank account.
  • Company is struck off. The business is officially removed from the Companies House register and no longer exists.

Clearly, this process is challenging and can be extremely worrying. Contact our team if you need help.

What options are there for avoiding compulsory liquidation?

If you fail to stop a winding-up petition, it could eventually lead to your company collapsing and prevent it from trading – so it’s important to act quickly.

If you fail to take the appropriate steps after a seven-day period, your company’s financial situation will be made known to the public, resulting in the freezing of its bank account.

It will take away your ability to trade and prevent company directors from disposing or borrowing against any assets. 

There are steps you can take to avoid the worse, that we can help guide you with.

The best thing you can do is to seek expert advice from an Insolvency Practitioner (IP) through Future Strategy.

Try to do this as early in the process as possible so they have the chance to assess your situation and act accordingly.

Here are some crucial steps to help prevent a winding-up petition:

  1. Pay your creditors in full

    You can stop the winding up of your company if you have the means to settle the petitioning creditor. It is strongly advised that you appoint an Insolvency Practitioner (IP) to handle this on your behalf.


    Be very careful about the transfer of any assets once a winding-up petition has been issued to your company, as a liquidator can recover said assets if a winding-up order is later obtained.

  2. Contact a specialist firm

    An insolvency firm such as Future Strategy will negotiate with creditors on your behalf, and a quick arrangement should be made with the creditor issuing the petition if the company is able to repay the debt within a reasonable timeframe.


    A hearing petition will still hold even if the creditor accepts, however, the court will adjourn the case, giving the company more time to settle its debt.

  3. Dispute the debt

    Your company can apply for an injunction if there is a legitimate dispute against the debt’s validity.  A legitimate dispute could allow you to apply for an injunction to postpone the public advertisement of the petition, or even remove the winding-up petition from the court’s records.


    However, this can only happen if you truly believe the petition is wrong and you must have evidence to back up these claims. You would also require assistance from a licensed IP.

  4. Enter administration


    Pre-pack or traditional administration will halt all legal action against a company. This will also stop creditors from winding up the company and gives you time to explore your options.

    At this stage, you may also consider voluntary liquidation, which will give you time to prepare to handle obligations such as personal guarantees, redundancies and lease terminations.

  5. Implement a Company Voluntary Arrangement (CVA)

    A CVA is a legally binding contract between an insolvent company (one that is unable to pay off debts) and its creditors, to pay off their debt, in part and over a fixed term. When this happens, each party must abide and 75% of creditors are required to agree to terms.

    A CVA can help save an insolvent business from being forced to close its doors entirely and is often supported by creditors as they know they will have a better chance of getting back funds than if the company goes into liquidation.

    It is a frequently-used method used to stop winding-up petitions.

    You could also attempt an informal financial arrangement, though this is not legally binding and may cause you difficulty if you default on payments.

What happens if I do nothing?

If you fail to act, then your company is likely to face serious issues when it receives a winding-up petition. The petition will be made known to the public, as the creditor will advertise it in the London Gazette.

This will then alert the company’s bank, other creditors and the public to its situation. The company’s bank accounts will be frozen and it will be forced to stop trading.

If no action is taken, after eight to ten weeks there will be a hearing to find out if the Court will issue a compulsory winding-up order. When this happens, the business will be forced into compulsory liquidation and will be prevented from trading again in the future.

If your company is subject to a winding-up petition, or you’re worried that it might be, please contact the Future Strategy team today.

What does compulsory liquidation mean for directors?

As part of the liquidation process, the Official Receiver will investigate your conduct during your time as director.

If there is any evidence of wrongful trading or if you deliberately or knowingly caused the company to become insolvent, you could be held personally responsible for the company’s debts or possibly be disqualified from being a director in the future.

In most cases though, you are free to start trading again and set up another limited company.

We can talk you through all of your options and find you the right solution

We're always here to help.

For free, immediate and confidential advice about closing a company, please contact us.