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Compulsory liquidation (or winding up) is a legal process by which a liquidator is appointed by the court to wind-up the affairs of a limited company. A company is said to be insolvent if it has insufficient assets to cover its debts or is unable to pay its debts as and when they fall. It is the directors’ responsibility to know whether the company is trading whilst insolvent; they can be held responsible for continuing to trade in that situation (the offence of wrongful trading).

A company (or a limited liability partnership) can be put into compulsory liquidation by order of the court if it cannot pay its debts, usually on the petition of a creditor. A company is considered unable to pay its debts if a creditor presents a written demand for payment (known as “a statutory demand”) and it fails to pay the debt or secure a repayment plan with the creditor.

Compulsory liquidation involves the collection and realisation of company assets into cash and the distribution of this money to the company’s creditors (who often will not be paid in full). How long liquidation takes will depend on the complexity of the case. Once the process has been completed, with the liquidator sending his final accounts to the Registrar of Companies, the company will be dissolved – it will cease to exist.

This Commons briefing paper provides a summary of the compulsory liquidation process in England, Wales and Scotland. It includes information on the impact of liquidation on creditors, employees and company directors.

It should be noted that there are separate Library briefing papers on “Company Administration” (CBP 4915) and “Pre-pack administrations” (CBP 5035).

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