A creditor, the company, a director or a shareholder may initiate a compulsory liquidation of a Limited company or LLP by submitting a “winding up petition” to the Court.
A government official called the Official Receiver (OR) immediately takes control of all aspects of the company and will interview the directors or owners of the business and calls upon them to submit a statement of affairs. However, if the OR finds that there are sufficient assets in the business to fund a private Insolvency Practitioner, the OR will elect one to undertake the compulsory liquidation or convene a meeting of creditors to appoint one. The OR is responsible for investigating the affairs of the company. A report is made to the Department of Enterprise, Trade and Investment as to whether there are grounds for any of the directors to be disqualified from acting in the management of other companies.
On the making of a winding up order the appointments of the directors are automatically terminated and no legal proceedings may be commenced or continue against the company. The winding up order does not prevent a secured creditor from dealing with charged assets.
The Liquidator will collect the assets of the company and distribute the recoverable funds amongst the creditors after deduction of the costs of the liquidation. The Liquidator will investigate whether any company transactions can be set aside as preferences or transactions at an undervalue and investigate the validity of any charges created. Onerous assets may be disclaimed.
Insolvent partnerships can also be subject to a compulsory liquidation which usually results in the individual partners entering bankruptcy or individual arrangements.