COMPULSORY LIQUIDATION

Feb 23
28 min read

"CAPITALISM WITHOUT INSOLVENCY IS LIKE CHRISTIANITY WITHOUT HELL." WHEN A COMPANY IS WOUND UP IN COMPULSORY LIQUIDATION, IT IS ALWAYS JUST AND EQUITABLE

The number of Compulsory Liquidations in England & Wales are at their highest since 2012 i.e. the end of 2008 Global Financial Crisis and the height of the Eurozone Sovereign Debt crisis. In 2025 there were 3730 companies put into Compulsory Liquidation against 18,525 that were put into Voluntary Liquidation. These figures should not be conflated with the 1272 Scottish and 351 Northern Irish corporate insolvencies arising from their separate legal jurisdictions.

This article begins with a synopsis that provides a skeleton of the Compulsory Liquidation procedure. It then addresses the fundamentals and terminology in the form of a Q&A before discussing the process in greater detail. We conclude with a commentary placing the matter in context of current affairs together with our contact details for further assistance.

Exclusions & Notices:

Content: Nothing in this article constitutes legal advice and you are referred to the terms of use of our site accordingly.
Opinions: Any opinion expressed herein is personal and solely that of the author.
Colors: For ease of reference, we place statutory law in red and common law in blue. This is entirely the authors preference and should not be copied in legal documents. Links to external sites, are underlined.

SYNOPSIS

A company can be 'Wound Up' under section 122(1)(f) Insolvency Act 1986 on the grounds that it is unable to pay its debts. This is just 1 of the 6 grounds to wind up a company contained in section 122(1) Insolvency Act 1986.
A Statutory Demand should be served prior to commencing winding-up proceedings. Thereafter, should the company fail to pay a Statutory Demand in excess of £750 it is automatically deemed unable to pay its debts pursuant to section 123(1)(a), Insolvency Act 1986.
That requirement does not apply in the case of a Judgement Debt. i.e. a Judgement Creditor does not need to serve a Statutory Demand on the Judgement Debtor if the court has already ordered payment of a sum and that payment has not been satisfied.
A Statutory Demand must be satisfied within 21 days otherwise the creditors may proceed with a Winding Up Petition. While seemingly straight forward, there remains pursuant top Insolvency Rules 2016 7.5(1)(O) (hereafter; 7.5(1)(o) IR 2016) an additional mandatory requirement that the Winding Up Petition state that: "it is just and equitable that the company should be wound up."
Should a creditor be concerned that the assets of the company are in danger of being dissipated, they should consider making an urgent application for an injunction or the appointment of a provisional liquidator. This is because the presentation of a winding-up petition does not take away the authority of a company's directors to deal with its business and assets. That only occurs when the Winding Up Petition is granted.
The liquidator will distribute the fund in accordance with the statutory order of priority. i.e. (1) Fixed charges, (2) Expenses of winding up, (3) Preferential debts, (4) Floating charges, (5) Ordinary unsecured creditors (pro rata) and (6) Members receive surplus (if any).
A liquidator also has a duty to investigate the reasons for the failure of the company and to report on its directors. The liquidator's costs of fulfilling their duties will be met from the company's assets, according to the statutory order of priorities. Concerning law firms registered in England & Wales, a report would be have already been submitted to the Solicitors Regulation Authority on presenting a winding up petition as solicitors have a legal duty to stay solvent.
The liquidator's fees are generally paid as an expense of the winding up. They are therefore generally paid out of the company's assets, after secured creditors holding fixed charge security have been paid; but in priority to preferential creditors and creditors who either have no security or have floating charge security over the company's assets.

FUNDEMENTALS & DEFINITIONS

In concise summary:

WHAT IS COMPULSORY LIQUIDATION? OR 'COMPULSORY WINDING UP?'

Compulsory liquidation, also known as compulsory winding-up, is a court-supervised procedure through which the assets of a company are realised and distributed to the company's creditors by a liquidator. There is no legal distinction between the term 'liquidation' and 'winding-up.'

What that means is, the court against the protest of the company, will order the company to cease trading/closed and appoint a 'liquidator' whom is usually an accountant. The liquidator immediately upon has complete legal control of the now defunct company and as first act will usually fire all the staff including the failed directors. The liquidator is then required to turn what is left of the 'bust' company into cash and distribute it between the company's creditors in order of legal preference.

WHAT IS A LIQUIDATOR?

When a company is unable to pay its debts, the creditors will issue a winding up petition at court and if approved the court will appoint an individual known as 'a liquidator.' This should be not confused with 'an Administrator' whom is charged firstly with saving the company i.e. returning it to profit is possible. The liquidator simply liquidates.

In more detail, the liquidator is an insolvency practitioner charged with acquiring a company's assets, realising them and then distributing the cash to the company's creditors in order of preference set by law. Should there be a surplus of money left over (very, very, very rare), the liquidator will be charged with tracing the parties entitled to the same and returning it. Simply put, when a company 'goes bust' a liquidator goes in and turns what is left into cash to distribute to the creditors.

An insolvency practitioner is a qualified individual authorised under section 390A Insolvency Act 1986. In practice they are almost ALWAYS accountants although some solicitors will act in this regard. For further information, please see the Insolvency Service website.

WHAT IS 'UNABLE TO PAY ITS DEBTS?'

To prove a company cannot afford to pay its debts you should serve a Statutory Demand. This gives the company 40 days from service to satisfy the debt and thereafter, if >£750 remains outstanding the company is automatically legally deemed 'Unable to pay its debts.'

There are further considerations such as the 'cash flow test' explained below.

WHAT IS A 'STATUTORY DEMAND?'

A Statutory Demand is a written demand for payment of debt by a creditor served on either:

An individual; in accordance with section 268(1)(a) of the Insolvency Act 1986 (IA 1986).
A Company; in accordance with section 123(1)(a) or 222(1)(a) IA 1986 (IA 1986).

What that means is:

If you are owed money by a company then you are 'a Creditor' of the company.
If the company fails or refuses to pay you can demand payment from it using a government form.
That government form is called a 'Statutory Demand' and can be downloaded from the UK government website which you can access by clicking here.
But be careful; there are 2 separate types of Statutory Demands. There is one for companies and a different one for individuals. It is important that you do not confuse these 2 separate documents as the law recorded on these 2 separate documents is different. What that means is if you serve/send the wrong Statutory Demand, it will be ineffective as it is quoting the wrong laws.
Once you have selected the correct Statutory Demand for a company and completed the information requested in full, you should serve it on the company. That means you send it by 1st class post to their Registered Office. In practice, Recorded Delivery is best so you have proof of service i.e. a receipt confirming the company received it.
You can find the registered office of the company in England & Wales via Company House. You can access the Company House by clicking here and then typing the company name into the search bar.
Once the Statutory Demand has been served/sent by 1st class post then you have made a Statutory Demand.

WHAT IS A 'WINDING UP PETITION?'

At the expiry of the Statutory Demand the creditor(s) may present the Winding up Petition at court and in doing so become 'the Petitioner(s)'. The' Winding Up Petition' refers to the papers lodged at court arguing for the liquidation of the company. There is no set standard form however, there are requirements as to what should be included in the 'Winding-Up Petition' as set out in the Insolvency Rules. These are as of the date of publication [23.02.26] (but may change in future)

(a) Insert title of court and hearing centre as applicable	To His Majesty's High Court of Justice
(b) Insert full name(s) and address(es) of petitioner(s) (rule 7.5(1)(b))	Mr Owed Money First line street, Second Line street, Reading, RG1 7QE shows as follows
(c) Insert full name and registered no. of company subject to petition (rules 7.5(1)(c) and 1.6(1))	1. Bad Debtors Ltd, registered number 123456 (hereinafter called “the company”) was incorporated on
(d) Insert date of incorporation and enactment (rule 7.5(1)(e))	1 January 2008 under the Companies Act 2006.
(e) Insert address of registered office (rule 7.(5)(d))	2. The registered office of the company is 21 Kennedy Road, Bolton, BL2 1ET.
(f) (g) See rule 7.5(1)(f)-(h)	3. The total number of issued shares of the company is 500 divided into 500 shares of £1.00 each. The aggregate nominal value of those shares is £500. and the amount of the capital paid up or credited as paid up is £1.00.
(rule 7.5(1)(i))	4. The principal objects of the company are: To carry on the business of a general commercial company and other objects stated in the memorandum of association of the company. The nature of the company’s business is Construction and home renovation.
(h) Set out the grounds on which a winding-up order is sought, see rule 7.5(j)-(l)	5. A winding-up order is sought on the grounds that the company is unable to pay its debts pursuant to section 122(1)(f) of the Insolvency Act 1986. Under a supply agreement dated xx xxx 20XX, the company ordered from the petitioner 100 crates of fruit and 100 crates of vegetables (the “Goods”). The Goods were delivered to the company on 30 July 20XX. The total price of the Goods was £5,300. An invoice in this amount was levied on the company on xx xxx 20XX, and under the terms of the supply agreement was payable by xx xxx 20XX. A statutory demand was served on the company on xx xxx 20XX. The demand required the company to pay the sum of £5,300.00. The company has failed to pay the said sum or to secure or compound to the petitioner’s satisfaction for the same or any part thereof. The company is insolvent and unable to pay its debts as they fall due.
(i) Insert date of service	A statutory demand was served on the company on [DATE]. [More than 4 months have elapsed between the service of the statutory demand and the presentation of this petition for the reasons set out in the witness statement of [usually as below at (k)] filed in support hereof.]
(j) Delete as applicable - see Rule 7.5(1)(m)	6. The company is not an undertaking within the meaning of Article 1.2 of the EU Regulation.
(k) Insert name of person making the witness statement (l) Insert whether COMI proceedings, establishment proceedings or proceedings to which the Retained Insolvency Regulation as it has effect in UK law does not apply (rule 7.5(1)(n))	7. For the reasons stated in the witness statement of Mr Owed Money is filed in support hereof it is considered that these proceedings will be [COMI proceedings] as defined in rule 1.2(2) of the Insolvency (England and Wales) Rules 2016.

[DELETE IF NOT APPLICABLE] (rule 7.5(1A))	a) [A moratorium under Part A1 of the Act is in force for the company] b) [The permitted exceptions to the restriction on winding up during a moratorium specified in section A20 that applies in these circumstances are [specify]]. c) [The name and contact details of the monitor].
(rule 7.5(1)(p))	8. In the circumstances it is just and equitable that the company should be wound up. The petitioner therefore applies for an order as follows:
	(1) that Bad Debtors Ltd, registered number 123456, may be wound up by the court under the provisions of the Insolvency Act 1986 or (2) that such other order may be made as the court thinks just.
(m) If the company is the petitioner, delete “the company”. Add the full name and address of any other person on whom it is intended to serve this petition (rule 7.5(1)(q)	Note: It is intended to serve this petition on the company.
Rule 7.5(2) (n) Insert name and address of Court (o) Insert name and address of District Registry.	Endorsement This petition having been issued by the court on 16 April 20XX will be heard at The Rolls Building, 7 Fetter Lane, London, EC4A 1NL on: Date: Time: hours (or as soon thereafter as the petition can be heard)
(p) This is the address which will be treated by Court as the Petitioner's address for service (rule 7.5(1)(r)).	The solicitor to the petitioner is: Name: Mr Owed Money Address: First line street, Second Line street, Reading, RG1 7QE Telephone no: 0900 123 123 Reference: AA/XYZ/1

WHAT IS 'NOTICE IN THE GAZZETTE?'

To be concise, it is public notice in the London Gazette that the court will hear a petition to wind-up the company. You can view real examples in the gazette by clicking here.

Once the petitioner(s) have issued their winding-up petition at court and served it on the company, the court fixes a trial date for a hearing. The petitioner(s) then give public notice of their petition and the hearing date by publishing that information in the London Gazette. The company and other creditors may be represented at the hearing, either to oppose or to support the petition.

WHAT HAPPENS AT THE HEARING OR TRIAL OF A WINDING UP PETITION?

Firstly it appears that 'Hearing' and 'Trial' are used interchangeably by legal practitioners in this context but they refer to the same thing. The Petitioners will attend court, be in a room with a judge and ask the judge to make a court order that company be wound-up or liquidated. We use the term 'hearing' for any meeting with a judge before 'trial' and the latter to denote the final hearing i.e. the court date the judge makes his decision on the issue i.e. will the company be wound-up or liquidated?

At the TRIAL of a winding-up petition, the judge may dismiss the petition, adjourn the TRIAL (conditionally or unconditionally), make an interim order, or make any other order that the judge thinks fit. When exercising this discretion, the judge will have regard to the wishes of the creditors. But in practice, if a majority of the creditors by value support the petition to liquidate, the judge will normally make 'the Winding Up Order'.

What that means is if the Petitioners (whom are the creditors wanting the company liquidated) have say 51% of the company's debt while the dissenting creditors against liquidation have 49%; the judge will usually make the Winding Up Order unless there is another good reason.

WHAT IS 'PROVISIONAL LIQUIDATION' AND WHEN WOULD IT BE USED?

Between the presentation of a winding-up petition and the making of a winding-up order against a company, the court may appoint a Provisional Liquidator. This is an emergency procedure governed by the Insolvency Act 1986. The Court can only appoint a Provisional Liquidator after a winding-up petition has been presented.

What that means is if you are worried that the directors of the company are going to essentially 'steal' hide, dispose or squander the company's assets including the cash, before the Trial i.e. there might be nothing left to recover; then you can ask the court to appoint a liquidator immediately to prevent the directors from acting.

Incidentally in the case of the solicitor profession i.e. the Petitioners seek to liquidate a law firm, the Solicitors Regulation Authority (SRA) should already have intervened to protect client interests. That means they've closed the firm and the idiot Partners are being dealt with by their 'friends'.

In the case of any regulated profession, we should first recommend Petitioners make contact with the relevant regulator to confirm the extent of their oversight and control of the company's assets. However, in the event the assets were lost through the negligent oversight of a regulator, it would be incredibly rare for that regulator to take responsibility so in these cases the appointment of a Provisional Liquidator may be inevitable in such cases. We would strongly suggest that any solicitor acting in these circumstances for a Petitioner Client confirm with the regulator who would be responsible for indemnifying the Petitioner Client in the event the assets were lost? This information should be provided to the court for consideration of a Provisional Liquidator. Should a firm of solicitors fail in these circumstances and the assets were lost; the only right of recourse their Petitioner Client may have would be against the solicitors professional indemnity insurer. That would be a sad end to a just and equitable endeavor.

WHAT IS 'DISSOLUTION' OF THE COMPANY?

This means the company has formally and legally been dissolved i.e. it no longer exists. 'Winding-Up' is the start of the race, liquidation is the process and dissolution is the end.

Once the winding up is complete, the liquidator must prepare a final account and send this to the company's creditors, including a notice of the effect of section 174(4)(d) Insolvency Act 1986, explaining how they may object to the liquidator's release. The liquidator then sends a copy of the final account to the court and registrar of companies with a statement of whether creditors objected to the release.

The company is automatically dissolved three months later subject to the potential for dissolution to be deferred on application to the Secretary of State. The Secretary of State's functions in this regard are performed by the Estate Accounts and Insolvency Practitioner Services (EAIPS) in Birmingham. It is possible to appeal the decision of the Secretary of State to defer the dissolution and an appeal can be lodged by anyone with a legitimate interest. There is no need to obtain the court's permission to appeal.

WHAT IS 'THE OFFICIAL RECEIVER?'

The Official Receiver is a state entity working for Insolvency Services. In the context of Compulsory Liquidation, unless the Petitioners have provided for an alternative liquidator, the Official Receiver it is the default entity that acts a liquidator of the company. There are various offices of the Official Receivers attached to different courts throughout England & Wales.

WHAT IS 'A LIQUIDATION COMMITTEE?'

Once the court has made a Winding-Up Order and appointed a liquidator, that liquidator may assemble a small group of creditors to assist him. This is not be confused with a Meeting of Creditors. At least 3 creditors should be assigned to the Committee and contributory Members can also be appointed in certain circumstances.

HOW TO WIND -UP OR LIQUIDATE A COMPANY?

The liquidation procedure is commenced by presenting a winding-up petition at court. Thereafter, an Insolvency judge will decide at the final court hearing or 'Trial', whether it is appropriate to make a winding-up order? The most common reason for making a winding up order is obviously, that the company is insolvent but there are 6 circumstances by which the company may be placed into insolvency.

These 6 circumstances a company may be wound-up are set out in section 122(1) Insolvency Act 1986 and they are:

The company is unable to pay its debts.
The court is of the opinion that it is just and equitable for the company to be wound up.
The company has passed a special resolution that it is to be wound up by the court.
The company is a public company, and it was registered as such when it was originally incorporated, but it has not been issued with a trading certificate under section 761 Companies Act 2006 within a year of its registration.
The company is an old public company within the meaning of schedule 3 to the Companies Act 2006 (Consequential Amendments, Transitional Provisions and Savings) Order 2009.
The company does not commence its business within a year from its incorporation or suspends its business for a whole year.

It is important to note that pursuant to s.125 Insolvency Act 1986, when hearing a winding-up petition the court has almost unfettered discretion to make a winding-up order or any other order that it thinks fit.

Re Hewitt Brannan (Tools) Co Ltd [1990] B.C.C. 354: In exercising its discretion, the court may take into account factors such as the ability of the company to find additional finance, or whether the majority of creditors support the liquidation.

INSOLVENCY TESTS CASH FLOW AND/OR BALANCE SHEET?

The tests and circumstances that determine if a company is unable to pay its debts for the purposes of section 122(1)(f) Insolvency Act 1986 are set out in section 123 Insolvency Act 1986. These are:

THE CASH FLOW TEST: A company is deemed unable to pay its debts if it is unable to pay its debts as they fall due[1]. This is a commercial test where the court looks to see if, on the evidence, the company is paying its debts as they fall due. If not, the company is considered to be insolvent and the fact that its assets may exceed its liabilities is irrelevant. As alluded to in the Q&A section above, failure to pay a Statutory Demand is automatically deemed a failure of the Cash Flow test.

In the Matter of Cheyne Finance PLC (in receivership) [2007] EWHC 2402 (Ch): The test of commercial or cash flow insolvency under 123(1)(e) of the Insolvency Act 1986 does not exclude the consideration of prospective or contingent debts and the standard of proof for proving the inability to pay debts was on the balance of probabilities.

THE BALANCE SHEET TEST: A company is deemed unable to pay its debts if there is a shortfall in the value of its assets compared with the amount of its liabilities, taking into account its contingent and prospective liabilities[2]. The test is NOT a simple assessment by the court of whether a company has "reached the point of no return" but a consideration of the evidence before it, the particular circumstances of the company whose solvency is being assessed and the prospective and contingent liabilities in question.

BNY Corporate Trustee Services Ltd and others v Eurosail-UK 2007-3BL PLC and others [2013] UKSC 28: The Supreme Court dismissed the appeal and cross-appeal of the parties, but considered that the "balance sheet test" for insolvency under section 123(2) Insolvency Act 1986 should not be regarded as involving a test as to whether a company had genuinely reached the point of no return.

Furthermore, there are 2 circumstances that when they arise, automatically mean that a company is unable to pay its debts. These are:

A company fails to satisfy a Statutory Demand[3]: A creditor is not required to serve a statutory demand before presenting a winding-up petition but, because of the presumption under section 123(1)(a) Insolvency Act 1986 that a company that does not satisfy a statutory demand within 21 days of its service is unable to pay its debts, it is often the first step taken by a creditor that intends to present a winding-up petition.
A company fails to satisfy in full a judgment debt (or similar court order) where execution or other process issued on the judgment is returned unsatisfied in whole or in part.

In most cases, the company must be "unable to pay its debts" at both the date of presentation of the winding-up petition and its hearing.

LIQUIDATION IS ALWAYS 'JUST & EQUITABLE'

Pursuant to rule 7.5(1)(o) Insolvency Rules 2016, in addition to containing the grounds on which the winding-up order is sought, all winding-up petitions must contain a statement that, in the circumstances, it is "just and equitable" that the company should be wound up.

However, while a petition for winding-up may rely solely on the ground that it would be just and equitable (its 1 of the 6 grounds) for the courts to make a Winding-Up Order under section 122(1)(g) Insolvency Act 1986, mostly in petitions alleging fraud, mismanagement or deadlock of the company. This ground is considered broad:

Re Leyland Printing Company Ltd and another [2010] EWHC 3788 (Ch): The court wound up a solvent company as it was the most efficient mechanism for distributing assets to creditors.

In general however, this ground to wind-up a company is usually only used by shareholders or other stakeholders whom satisfy certain conditions under the Companies Act 1985 and Companies Act 2006.

What that means is the situations where the court will consider it just and equitable commonly include but are not limited to:

Loss of substratum i.e. when the original purpose of the company has been abandoned or has since become impossible to achieve e.g. The Restoration of Hasburg Rule to the glorious and all conquering empire of Austro-Hungry. All hail.
Deadlock i.e. the shareholders and directors are so equally but polar oppositely divided the company cannot function.
Mismanagement i.e. gross professional negligence.
Exclusion from Management. There are cases where directors or a Partner in a firm, are just thuggishly excluded from management in breach of their legal rights and responsibilities. While professionally embarrassing, simply not liking a director or shareholder is no excuse and the law should act accordingly.

Alternatively, Disgruntled members of a company may also seek (but is beyond the scope of this article) to:

Bring actions in the name of the company (derivative claims).
Present a petition on the basis that the affairs of the company are being conducted in a manner that is unfairly prejudicial to the petitioner’s interests as a member of the company. These issues however, are largely beyond the scope of this practice note.

THE SECRETARY OF STATE & THE PUBLIC INTEREST

The Secretary of State can petition the court for a winding-up order based on public interest under section 124A Insolvency Act 1986. Only the Secretary of State can bring a Winding-Up Petition on the grounds of public interest. And, the Secretary of State may do so even if a creditor’s winding-up petition is pending against the same company (but that would be a waste of public money).

What that means is the company does not need to be insolvent or trading unlawfully; the requirement is that it is in the public interest for the court to make a winding-up order. To give real examples from case law:

Re Driscoll Management Services Ltd [2001] 6 WLUK 668: disreputable business practices were sufficient for the court to exercise its public interest jurisdiction.

And;

Secretary of State for Business, Energy and Industrial Strategy v PAG Asset Preservation Ltd [2019] EWHC 2890 (Ch): The High Court refused to make a winding-up order on public interest grounds against two companies that had promoted an avoidance scheme for empty property business rates. The reason for this was because that scheme did not itself misuse insolvency legislation or otherwise demonstrate a lack of commercial probity that it was in the public interest to wind up its promoters (and the avoidance of such rates was not caught by the general anti-abuse rule). The fact that the scheme involved the creation and then solvent liquidation of companies that had a single, artificial, asset did not itself justify winding up in the public interest. This was upheld on appeal[9] although the Court of Appeal did emphasise that the decision applied to this particular scheme, not to business rates avoidance schemes in general.

WHICH COURT?

The Winding-Up Petition should be presented in the Chancery Division of the High Court. These relevant courts are now named the Business and Property Courts and the petition will be heard as part of their Insolvency and Companies List.

The appropriate county court (which depends on the location of the registered office of the company) also has concurrent jurisdiction if the issued share capital of the company is less than £120,000[.

There are special provisions for the London insolvency district, so that a Winding-Up Petition must be presented in the High Court, not the county court, if the company's registered office during the immediately preceding six months has been in the London insolvency district. The High Court has the power to transfer winding-up cases to the County Court at Central London under rule 12.30(5) Insolvency Rules 2016.

PROVISIONAL LIQUIDATION / EMERGENCY PROCEDURE!

Between the presentation of a winding-up petition and the making of a winding-up order against a company, the court may appoint a Provisional Liquidator. This is an emergency procedure governed by the Insolvency Act 1986. The Court can only appoint a Provisional Liquidator after a winding-up petition has been presented.

A Provisional Liquidator will usually be appointed by the court when there is a real risk that the directors or others in control of the company may steal, squander or otherwise lose/dispose of the company's assets. In polite conversation, it would be said that a Provisional Liquidator should be appointed to protect the company's assets or conduct investigations. That being said and for the same reason, the appointment of Provisional Liquidators are relatively rare as in regardless; the directors are removed and the company cannot trade.

The other reason a Provisional Liquidator may be appointed is when the company is clearly already insolvent.

Revenue and Customs v Rochdale Drinks Distributors Ltd [2011] EWCA Civ 1116: the Court of Appeal considered the correct approach on an application to appoint provisional liquidators to a company, under section 135 of the Insolvency Act 1986. In particular, the court considered the requirement for the petitioner to show that there is a risk of jeopardy to the company's assets pending the hearing of the winding up petition.

LIQUIDATING THE COMPANY - GO!

As already stated, the court shall appoint a liquidator whom is usually an accountant but if the Petitioners have not already nominated a liquidator for the court to appoint then it will automatically be the Official Receiver. In this part of the article, we will use the terms 'the Official Receiver' and 'Liquidator' for ease of referencing how the latter can replace the former.

Upon the Granting of the Winding-Up Order:

Control: The liquidator (whether the Official Receiver or another appointed liquidator) immediately takes control of the company's assets and the powers of the company's directors cease. Any disposition of the company's property by anyone other than the liquidator is void.
Report: The liquidator has to submit a report on the conduct of failed directors to the Secretary of State, and the report has to include any conduct which is relevant to the Secretary of State's decision as to whether to apply for a disqualification order (or to accept a disqualification undertaking) in relation to each director.
The Statement: Any failed director of a company that is being wound up may be required to assist the liquidator and to provide a statement of the company's assets and liabilities. The Liquidator or Official Reciever then has a legal duty to submit reports to the creditors in respect of the company's assets and keep them updated as to the progress of realising the same.
Dismissal: Needless to say, all employees are automatically dismissed.
Company Notice: All company papers whether in hard copy, electronic or any other form) and websites must state that the company is in liquidation.
The Registrar: The Official Receiver advertises the fact of the winding-up/liquidation and notifies the Registrar of Companies that the company is in liquidation. It is vital that the Company Number is included.
Proof of Debt: The Official Receiver will contact all known creditors inviting them to submit a proof of debt with details of the amount they are owed by the company, and any supporting evidence. The requirements for a proof of debt are set out in rule 14.4 Part 1 Insolvency Rules 2016.
The Official Receiver remains the liquidator of the company until or unless;
1. The creditors and contributories nominate a liquidator under section 139 Insolvency Act 1986, after the Official Receiver seeks nominations under section 136 Insolvency Act 1986. The Official Receiver may have voluntarily sought nominations from creditors and contributories . Or the creditors may have requisitioned a decision . This must take place within 12 weeks.
2. The Secretary of State appoints a liquidator under section 137 Insolvency Act 1986. The Official Receiver may apply at any time to the Secretary of State to appoint a liquidator, but is under a duty to consider a reference to the Secretary of State where nominations for a liquidator are sought from creditors and contributories and no person is chosen.
3. The court appoints the liquidator as the administrator of the company, or the supervisor of the company .

REPLACING THE OFFICIAL RECIEVER - (DO IT UNLESS THERES NOTHING LEFT)

In large or complex liquidations, the Petitioners will usually have asked the court to appoint a specific liquidator. Should they have not or in all other liquidations, then the court shall automatically appoint the Official Receiver. Thereafter and pursuant to section 136 Insolvency Act 1986, the Official Receiver must decide within 12 weeks of the winding-up order being made whether to seek nominations to choose a liquidator and, if the Official Receiver decides not to, the Official Receiver must give notice of this decision to the court and the company's creditors and contributories within 12 weeks of the winding-up order.

Should the Official Receiver opt to seek nominations for a liquidator to replace it, the Official Receiver must deliver notice to Creditors and contributories inviting proposals with the information required by rule 7.52 Part 1 Insolvency Rules 2016. Following the end of the period for inviting proposals, the Official Receiver must seek a decision on the nomination of a liquidator by a decision procedure or by the deemed consent procedure. Both of these are outside the scope of this article.

Otherwise and if at any time 25% in value of the company’s creditors, can request the Official Receiver to exercise his power to seek nominations for a replacement liquidator. That means they can tell the Official Receiver to get lost and as the Official Reciver is a government body, this is usually a wise course of action as like most state entities, its widely regarded as absolutely useless at performing its intended function, save to give some people 'a job.'

This article is not legal advice, but as the tone here should indicate; the only time we would ever suggest NOT replacing the Official Receiver is if there is obviously nothing left and the directors are long gone. Our own experience is that like every state entity (save for the judiciary of England & Wales) the Official Receiver is about as useful to those it is meant to serve as a chocolate kettle to a diabetic man trying to make de-caffeinated coffee.

MEETING OF THE CREDITORS

From 6 April 2017, Creditor Meetings ceased to be the default mechanism for creditors' decisions. The liquidator may at any time ask creditors to make a decision by giving notice of either a decision procedure or the deemed consent procedure. Part 15 Insolvency Rules 2016 contains the detail on decision making and must be read in conjunction with the decision-making provisions in the IA 1986 effective from 6 April 2017.

A physical meeting of creditors will be the exception rather than the norm, and will only be permitted where requested by creditors. There are three alternative thresholds for such request (10% in value of the creditors, 10% in number of the creditors or 10 creditors).

THE LIQUIDATION COMMITTEE - ITS NOT THAT BAD

The purpose of a liquidation committee is largely to supervise the liquidator. The committee is essentially a small group of representative creditors whose purpose is to exercise the statutory control functions conferred on it by or under the Insolvency Act 1986. Generally, the primary purpose of a liquidation committee are:

Determining remuneration: the committee will be the first port of call for determining the basis of the liquidator's remuneration and obtaining approval for that remuneration.
Notification of proposed disposal of assets to connected persons: a liquidator must give the liquidation committee notice of a disposal of company property to a connected person.
Sanctioning the continuance of directors' powers in a Creditors Voluntary Liquidation: Technically outside the scope of this article but ordinarily, in a Creditors Voluntary Liquidation (CVL), the powers of the directors cease immediately as in Compulsoary Liquidation. However, the liquidation committee can sanction their continuance.
Sanctioning the sale of company property for shares in a section 110 scheme: the sanction of the liquidation committee is required where a section 110 scheme is undertaken using a CVL.
Sanctioning the distribution of assets in specie: a liquidator (in a CVL and compulsory liquidation) requires the committee's permission before distributing the assets.
Ratifying the liquidator's powers: where a liquidator exercises a power for which they require permission, but does so without permission, the liquidation committee can ratify the liquidator's actions for the purpose of enabling the liquidator to meet the liquidator's expenses out of the company's assets. Basically they 'ret-con' to make it legal.
Sanctioning a call on unpaid shares: a compulsory liquidator cannot make a call on contributories for unpaid shares without the sanction of the liquidation committee or the special leave of the court.

The liquidator can refer to the committee for approval and guidance on matters relating to the liquidation. A liquidator will usually consult with the committee before making key decisions, particularly on controversial issues. The liquidator cannot however bypass the creditors, and ask the committee to make a decision, where the Insolvency Act 1986 or the Insolvency Rules 2016 require the liquidator to seek a decision from the general body of creditors. We emphasise that 'the Liquidation' Committee and 'the Creditors.'

In practice, committees tend to be established in larger or more contentious insolvency proceedings particularly where litigation or an investigation is anticipated. A Liquidation committee is not compulsory and if insufficient creditors want to sit on one, no committee will be established. That being said, if a Litigation Committee is required then at The first Meeting of Creditors may they establish a liquidation committee. This liquidation committee:

Consist of at least 3 (but not more than 5) creditors.
Receives reports from the liquidator and, in turn, may report to the main body of creditors.
Meets periodically.
Assists the liquidator.
Approves the liquidator’s remuneration;

From the Liquidator's perspective a key function of the Liquidation committee (save for ratifying any mistakes post-accident) is setting the liquidator's remuneration. Typically, a liquidator can be paid:

On the basis of their time spent by themselves and their staff i.e. and hourly rate.
Fixed-Fee Basis.
Percentage of Asset realisations.

FUNCTION & POWERS OF THE LIQUIDATOR

A liquidator appointed in a compulsory liquidation will be an authorised Insolvency Practitioner or the Official Receiver. Once appointed to a company, a liquidator has immediate control of its assets and affairs investigate the reasons for its failure and report on its directors. Ultimately, a liquidator's role is to fulfil the primary function of collecting in, realising and distributing the assets of the company to its creditors

A liquidator has a number of statutory powers to enable them to fulfil their duties the majority of which are found in Schedule 3 of the Insolvency Act 19842 pursuant to which a liquidator in England and Wales has power to:

Carry on the business of the company, but only to the extent that it is necessary for the beneficial winding up of the company. What is "beneficial" will depend on the purpose of the winding-up.
Commence or defend court proceedings in the name of the company, for example to recover debts owed to it or dispute debts alleged to be owed by the company.
Bring legal proceedings to challenge antecedent transactions.
Pay debts and compromise claims.
Sell any of the company's property.
Execute deeds and other documents in the name of the company.
Raise money on the security of the company’s assets.
Make or draw a bill of exchange or promissory note in the name of the company.
Appoint an agent to do any business that the liquidator is personally unable to do.
Do all other things that may be necessary to wind up the company's affairs and to distribute its assets.

The aforesaid list is paraphrased and condensed for simplicity and it should be noted that challenges to the authority of a liquidator often turn on the precise wording of the exact power set out in Schedule 4.

The liquidator's costs of fulfilling their duties will be met from the company's assets, according to the statutory order of priorities. These priorities which refer to the order the assets are distributed are:

1. Fixed charges.

2. Expenses of winding up.

3. Preferential debts.

4. Floating charges.

5. Ordinary unsecured creditors (pro rata).

6. Members receive surplus (if any).

Should a creditor have the benefit of security e.g. a charging order, that creditor is entitled to be paid from the proceeds of sale of the secured assets, subject to certain exceptions.

FREEZE ON LEGAL PROCEEDINGS

On the granting of a Winding Up Order, there is an automatic stay on legal proceedings against the company and its assets.

What this means is if Creditor A brought legal proceedings against the company/sued to secure an asset e.g. a plot land, but before the court enters judgement on the plot of land another judge granted a Winding-Up Order on the Petitioner from Creditor B, then Creditor A's legal proceedings would be automatically stayed. In these circumstances, Creditor A would need to first apply to court for permission to continue. Should the claim is for monetary relief only, the creditor is unlikely to be granted permission; generally only claims that are of a proprietary nature are allowed to continue

There is no freeze on the enforcement of security, but there is a stay on commencing or continuing with proceedings against the company without the leave of the court. Accordingly, a security holder might agree with the liquidator that the liquidator will realise the secured assets, to avoid the need for court applications or other unnecessary enforcement expense by the secured creditor.

For the avoidance of doubt, the stay does not extend to the forfeiture of a lease nor regulatory action by the Financial Conduct Authority under sections 91 and/or 123 of the Financial Services and Markets Act 2000.

COMPLETION OF LIQUIDATION & DISSOLUTION

The company is automatically dissolved three months later subject to the potential for dissolution to be deferred on application to the Secretary of State.

The Secretary of State's functions in this regard are performed by the Estate Accounts and Insolvency Practitioner Services (EAIPS) in Birmingham. It is possible to appeal the decision of the Secretary of State to defer the dissolution and an appeal can be lodged by anyone with a legitimate interest. There is no need to obtain the court's permission to appeal.

COMMENT

While at the time of publication we are pleased to note recent data points show the UK Economy defiant against negative market predictions, a closer look suggests the budget surplus is due to heavy tax rises on wealthy individuals. These people have since left these shores and the end of the surplus will surely follow.

**D E F I N I T I V E - D E C I S I V E - D I R E C T**

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