Winding up petition
Certain parties can apply to ‘wind up’ a company that is unable to pay debts of more than £750. The application to the court is known as a winding up petition and if successful, may result in the compulsory liquidation of a company, so is considered a serious course of action.
Parties that are entitled to this include the company itself, any creditor who establishes an undisputed debt in excess of £750, the shareholders, the Secretary of State or the Official Receiver.
Process of compulsory liquidation
The grounds upon which one can apply for a compulsory liquidation are normally grounds to enable an application to the court for an order to compulsorily wind up of a company and fall under the following reasons:
1. The company has so resolved
2. The company is unable to pay its debts as they fall due
3. It is just and equitable to wind up the company
In practice, the vast majority of compulsory winding up applications are made under one of the last two grounds.
An order will not generally be made by the Court if the purpose of the application is to enforce payment of a debt which is disputed.
Once a petition by a creditor has been heard by the Court a date will be set for a hearing to issue an order to wind up the company and place it into compulsory liquidation. The Secretary of State is appointed liquidator through the office of the Official Receiver. The Official Receiver can then proceed to deal with the liquidation or a private insolvency practitioner can be appointed in their place. The second option is often taken when there are assets to be realised or action to be taken against the officers of the company.
If you are a director of a company that is faced with a petition, that it cannot pay, you may want to consider a Creditors Voluntary Liquidation. This gives the director(s) the opportunity to work with an insolvency practitioner rather than being forced into liquidation by the Court and having to deal initially with the Official Receiver and then any subsequently appointed private practitioner. When a company is liquidated through the Court, any realisations made attract what is called an Ad Valorem fee, which is paid to the Secretary of State and is calculated on a sliding scale (to a maximum of £80,000) as follows:
|Realisations of £2,500||No Charge|
|Realisations of £2,500.01 to £4,200||100%|
|Realisations of £4,200.01 to £5,700||75%|
|Realisations of £5,700.01 to £401,700||15%|
|Realisations of above £401,700||1%|
This charge will adversely affect the funds remaining for distribution to the company creditors.