For a director, whose business is struggling, doing nothing is the worst position to be in, as compulsory liquidation can be the outcome. This article looks at what a compulsory liquidation actually means for a director who ends up there, following a winding up petition, a court hearing and then an Official Receiver being appointed automatically with no say from the company at all.
The alternative available to directors who act before receiving a winding up petition is a Creditors’ Voluntary Liquidation, where the company, via its directors and shareholders, not the court, nominates the licensed insolvency practitioner.
The message to directors of companies in financial difficulties is take early advice for more options.
Doing nothing is the worst position a director can be in
A compulsory liquidation follows a winding up petition presented by a creditor. Almost 60% of winding up petitions are served by HMRC.
In 2025, nearly 7,000 winding-up petitions were filed in England and Wales, of which 3,730 resulted in Compulsory Liquidations, the highest annual number since 2012. Indeed, for the 12 months to May 2026 the number of petitions files was up 230.3% on the previous 12 months.
Take a look at our article detailing what directors can do if they receive a winding up petition.
The company does not have to be insolvent to receive a winding-up petition, but usually it is. A petition is typically served when the company has cash flow issues and is unable to muster enough money to pay a pressing creditor. When this happens, there is usually a line of creditors pressing on the door.
What doing nothing leads to: the winding up petition and the Court hearing
Insolvency is usually established by a company’s failure to comply with the obligations laid out in a statutory demand requiring payment within twenty-one days.
Usually, when a winding-up petition is served, the company’s bank will freeze their bank account, having seen the petition advertised in the London Gazette. This can bring day to day trading to a halt and create serious operational pressures.
Although validation orders can be applied to allow mission critical payments, the damage is done and more legal costs are incurred.
The result: an Official Receiver is forced on the company – not chosen
Once the winding up order is made by the court, the Official Receiver takes over. The Official Receiver is a government civil servant and court officer who manages bankruptcies and forced company liquidations.
This involves the requirement to be cooperative, to complete a detailed questionnaire and a formal interview. The Official Receiver controls the assets in a compulsory liquidation, investigates the reason for the failure, and also checks for wrongdoing. The process can be traumatic for directors, which is why we say to directors not to do nothing.
Even when a winding-up petition is served, the company is able to instruct us, as Licensed Insolvency Practitioners to help place the company into Creditors Voluntary Liquidation (CVL).
A CVL is an insolvency process instigated by the directors and shareholders, which is managed by a Licensed Insolvency Practitioner who is appointed by the directors not the Court.
At Antony Batty & Company, we get the call when either a petition is served or more often, when the company has cash flow issues and is insolvent, and has decided to take action. At this stage directors are concerned about their fiduciary duties, which shift from the shareholders to the company’s creditors,
This is a dangerous area and touches, especially, on wrongful trading. Wrongful trading is a civil offence under section 214 of the Insolvency Act 1986 and can lead to personal financial liability or director disqualification.
So, it is imperative that advice is sought whilst directors still have some measure of control. With compulsory liquidation, directors have no control.
At this stage, several options may be available to salvage all or parts of the underlying business. These options include Administration and Company Voluntary Arrangement.
Talk to our Insolvency Practitioners if concerned about approaching insolvency
Our Insolvency Practitioners at Batty & Company are available to advise directors facing financial difficulty at any of our offices in London, Bournemouth, Brentwood, Mill Hill, Salisbury and Thames Valley.
If your company is struggling, the time to talk to us is as soon as the financial difficulties begin to bite, not after the arrival of a winding-up petition. Contact us for a free of charge initial discussion with no commitment.
