Insolvency in Scotland: Understanding Court Liquidation

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Updated: 21st March 2021

What is a court liquidation in Scotland?

When a company is unable to pay its debts, a creditor may petition the court for it to be liquidated. In England and Wales this is called compulsory liquidation; in Scotland the process is known as court liquidation.

You may have reached this situation with your own company if a creditor has been relentlessly chasing you for payment. Perhaps they feel that petitioning the court for your winding-up is the only remaining option, but there are also other circumstances when a court liquidation might take place.

If it is proved to the court that the total of company liabilities is greater than its total assets, the court can issue a winding-up order. A petition may also be made by the directors, shareholders, or the company itself.

How has this situation been reached?

If your company owes more than £750, you fail to pay or reach agreement to pay a 21-day statutory demand, or don’t respond to a 72-hour winding up notice, then the creditor may petition for a court liquidation. The petition is normally advertised in the Edinburgh Gazette.

Depending on how the creditor views your previous conduct, and your company’s history of payment, they may decide to request that a provisional liquidator is appointed to safeguard company assets until a winding-up order is granted.

From your creditor’s point of view, it would help to ensure that some monies will be generated by the sale of assets, and that they can reclaim at least part of what is owed.

Court Liquidation Winding Up

Understanding the court liquidation process

A local Sheriff Court (with the correct jurisdiction) generally deals with straightforward claims, and higher value or more complex petitions are processed by the Scottish Court of Session.

When an order is granted, a licensed insolvency practitioner is appointed as interim liquidator. Creditors have the right to choose a different liquidator at the creditors’ meeting, or they can agree the continuation of the interim liquidator.

A note will be placed on your company’s public record, as you have to notify the Registrar of Companies for Scotland and the Accountant in Bankruptcy (AiB), of the court order.  

These are some of the main points to consider when court liquidation is threatened:

  • Creditors with security over your company’s assets are entitled to be paid first, and receive money from the proceeds of that asset’s sale
  • As a director you have no further control over the company
  • When liquidation is complete, the liquidator notifies the Registrar of Companies for Scotland and the AiB, and a notice is placed in the Edinburgh Gazette
  • The company is dissolved, generally three months after this notice has been placed

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