What is Compulsory Winding Up?

A compulsory winding up (CWU) is a court-driven process, usually begun by a creditor issuing a winding up petition.  A creditor can apply to wind up the company if:

• They are owed £750 or more and
• They are able to prove that you cannot pay you.

If a petition has been presented against the company it has the following options.

• Pay creditor who has issued petition;
• Defend the petition or
• Put a proposal to your creditors for a Company Voluntary Arrangement.

The court has to be satisfied that the individual against which the CWU petition has been issued is insolvent.

A company is insolvent if one of two tests can be met:

• The Cashflow Test: A company cannot pay its debts as and when they fall due
• The Balance Sheet Test: A company has insufficient assets to be able to meet all of its liabilities, including prospective and contingent liabilities, if and when they eventually fall due; and there will therefore eventually be a deficiency.

Due to COVID please note that the Government has put a stay on most WUC hearings. More information can be found here.

Process

There are two means by which a company can be compulsory wound up, either on the petition of a creditor or on the company’s own petition.

The Petition of a Creditor

Statutory Demand:  A  statutory demand is normally issued.  This gives the company 21 days to pay in full or negotiate a settlement.  If the debt remains unpaid after 21 days the creditors will usually apply for the winding up petition to be heard at court.

Winding Up Petition: A petition is presents against the company. The winding up petition will be served at the registered office of the company.  Once received there is a 7 day window for the company to take action and either pay the debt in full or make alternative arrangements such as a company voluntary arrangement which will allow the company to escape the threat of liquidation and provide an opportunity to recover.

Advertisement of the Petition:If no actions is taken the winding up petition will be advertised in the London Gazette.

The Hearing: After 7 days the winding up petition is heard by the court. During the court hearing the judge will weigh up whether the creditor has valid grounds and, if it concludes in their favour, it will rule that the petition become a winding up order.

Winding up Order:A winding up petition that has been heard and approved at court becomes a winding up order.

The petition of the Company

If you are of the opinion that your company is insolvent, you can present a petition to the court.

You can apply to wind up your company here.

Once submitted the court will make the winding up order if they are the company cannot pay its debts of £5,000 or more it will issue the winding up order.

Effective Date

The effective date of the CWU is the date the court approves the winding up order. 

Effect of CWU

The Court will appoint the Official Receiver to act as Liquidator for the company.

The Liquidator will sell the assets of the company to repay creditors and the business closes down. The company name remains live on Companies House but its status switches to liquidation.

Where there are assets the Official Receiver may call a meeting of creditors or ask the Department for Economy to appoint an Licensed Insolvency Practitioner to step in aa liquidator. 

Duties of the Liquidator

Liquidator (either the Official Receiver or a Licensed Insolvency Practitioner) will

• Realise the assets of the company for the benefit of creditors;
• Investigate the cause of the company’s failure and submit a report to the Department of Trade and Industry on the conduct of the directors and
• Agree creditors’ claims and, if funds available, make a distribution.

Conclusion of CWU

Once all assets have been realised and any distributions made to creditors the company will be dissolved. Any liabilities which remain unpaid by the company will be written off, unless they were personally guaranteed. The company will remain on the Companies House Register for 20 years after dissolution.

Advantages of CWU

The advantages of CWU include:

• Outstanding debts are written off;
• Legal action is halted;
• Staff can claim redundancy pay and
• Leases can be cancelled.

Disadvantages of CWU

There are disadvantages to a CWU  These include but are not limited to:

• Accusations of wrongful trading;
• Personal liability for company debts;
• Liability for overdrawn directors’ current accounts;
• All business assets will be sold and
• All staff will be made redundant