What is compulsory liquidation and when is it used?

Compulsory liquidation is a court-ordered process used to close a company that has failed to pay its debts. It usually begins when a creditor owed more than £750 files a winding-up petition against the company. If the court grants the petition, a winding-up order is issued and the Official Receiver is appointed as liquidator. Control of the business passes immediately out of directors’ hands. The Official Receiver investigates the company’s affairs, sells assets, and distributes proceeds to creditors. Compulsory liquidation is often seen as more damaging to directors because it suggests they failed to take responsible action earlier. It can also trigger thorough investigations into whether wrongful trading, fraudulent trading, or mismanagement occurred. Directors risk disqualification or personal liability if misconduct is found. Compulsory liquidation is typically used as a last resort by creditors after attempts to secure payment have failed. For directors, it highlights the importance of acting before matters reach the courts.