Compulsory Liquidation & What It Means For Companies

• The content on this page has been written by Keith Steven and approved by Chris Ferguson Licensed Insolvency Practitioner and Managing Director of RMT KSA

What is Compulsory Liquidation?

Compulsory liquidation is a court-led process where a judge orders that a company be liquidated because it cannot pay its debts and is insolvent.

The process is started by a creditor who has given up trying to recover money from the company directly. Consequently, they have asked a solicitor to issue a winding up petition. This is then served on the company at their registered address.

For a winding up petition to be served, creditors must be owed at least £750. The sum must have been unpaid for at least 21 days (this is stated and submitted by a statutory demand letter).

It is a serious action and can be detrimental to a business. However, it IS possible to stop compulsory liquidation, so long that you act fast in response to your company being “served a winding-up petition.” If you have been served a petition, you must immediately seek professional advice to explore all options.

Who Usually Forces Companies into Compulsory Liquidation?

In 2024, the High Court received nearly 5600 Winding-Up Petitions, with HMRC accounting for almost 49% of them. HMRC is most likely to ask a court to put a company into compulsory liquidation. Why is that?

HMRC is an “involuntary” creditor. Because you are trading and employing people, the debt to HMRC increases. If you have tried to do deals to repay outstanding PAYE and or VAT and still fail to make payments, the tax debt will be rising, so they may decide to issue a winding up petition to put the company into compulsory liquidation.

What is the Process?

1. A Statutory demand letter is sent to the debtor to give 21 days for the company to pay the debt.
2. A Winding up petition is issued if the debt is not paid in those 21 days. This period gives the company an extra seven days for the debt to be paid. (Be aware that WUPs are advertised in the London Gazette – though in some cases this can be avoided. Seeking advice quickly is essential to prevent advertisement.) Once the petition is advertised the bank accounts of the company will be frozen.
3. Winding up order served by Court if the debt is not paid in the extra seven days.
4. Official Receiver (OR) (Liquidator or Licensed Insolvency Practitioner) appointed to put the company into compulsory liquidation. The directors’ power and responsibilities cease. The director’s role in this process is to work with the OR, assisting if and when needed.
5. Remaining company assets are sold and distributed, with the money made from doing so used to repay the debts. It is up to the OR to get the best return for creditors and act in their best interests.
6. Company is dissolved and struck off the register: it ceases to exist.

How long does the process take?

Compulsory liquidation often takes up to a year to complete. The process of issuing of the petition and when the Official Receiver is appointed can happen quickly. But the actual compulsory liquidation process itself can take time.

How much does it cost to put a company into Compulsory Liquidation?

To force a company into liquidation the costs are high, so a creditor must decide whether it is worth it.

The typical cost of the action will be £250-£500 for a statutory demand, but a petition will cost between £400 and £800 to issue, PLUS £2,600 court deposit (from November 2022) and a filing fee of £302.

What are the consequences of Compulsory Liquidation on Directors?

The Official Receiver has the role of investigating the actions of the officers and directors of the company thoroughly. If it is proven that you traded wrongfully, took credit without reasonable prospect of repaying the debts, and failed to submit accounts or several other offences, then you may face action.

• Loss of power, duties and control of the company.
• The potential closure of the business if you can’t repay the debts.
• If the directors try to raise money for a new company it is likely that any credit check will flag that the directors have had a previous failure. A compulsory liquidation will look worse than a voluntary liquidation on their record.

Can the process be stopped?

Yes. However, you must ensure you act fast once a winding up petition has been served.

Following the winding up petition you can choose from the following options:

• Pay the debt which will dismiss the petition.
• Seek an adjournment and explore the possibility of a CVA (Company Voluntary Arrangement).

If you act too late and the winding up petition is heard by the Court and issued, then there is no more that can be done. Seeking professional advice immediately is critical to explore the possibility of stopping the process.

See our case studies where we successfully stopped the company being wound up.

What is the difference between Compulsory Liquidation and Voluntary Liquidation?

As mentioned above, a liquidation that is compulsory is started by a creditor that goes to the court. In the case of a Voluntary Liquidation, the directors sensibly realise that the company is insolvent and that they should act to start the process themselves. The directors seek to appoint a liquidator, who has to be a licensed insolvency practitioner. The process’ full name is Creditors Voluntary Liquidation as ultimately it is always the creditors that have to approve and vote.

Advantages of Compulsory Liquidation

Not much, except that it doesn’t cost you anything.

Disadvantages

• Can take up to a year to complete instead of a month.
• Employees won’t get compensation until the process is complete.
• The Official Receiver will have the resources to look more closely at your conduct as a director and claim from you if necessary.
• Generally a bit of an unpleasant experience.
• It doesn’t look as good as a voluntary liquidation if you decide to start again and want to raise finance.

How Many Companies Are Compulsory Liquidated?

The total number of compulsory liquidations in September 2025 was 275. The number of compulsory liquidations has increased from record low levels seen in 2020 and 2021, while restrictions applied to the use of statutory demands and certain winding-up petitions.

A Flow Chart of the Compulsory Liquidation Process