Compulsory liquidation refers to a formal process, initiated by the court that is meant for dissolving a company which cannot pay debts. This is usually triggered through creditor’s petition or acknowledging insolvency by directors.
Key Features of Compulsory Liquidation
- A licensed insolvency practitioner is appointed by the court to take over company assets/affairs
- They collaborate with creditors to determine whether the business can be rescued through a voluntary arrangement
- Failing voluntary resolution, they proceed to sell company property and distribute proceeds to creditors in priority order
- Residual funds may return to members once all liabilities are settled and firm documents archived
Example of Compulsory Liquidation
An imported goods distributor’s unsalvageable position compelled suppliers to petition for compulsory winding up, enabling the liquidator to efficiently dispose inventory to partially fulfill outstanding payment obligations before shuttering operations.
Key Takeaways
Seeking specialist counsel facilitates prudent judgment on unavoidable liquidation triggers and ensures a cooperative process respecting legal rights of parties while reasonably winding down unviable enterprises no longer serving economic function.