Effects of an order for compulsory liquidation, Business Law and Ethics

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Effects of an Order for Compulsory Liquidation:

The effects of the order are follows as are:

(a) the Official Receiver (an Official of the High Court whose duties relate mainly to bankruptcy of individuals) becomes provisional liquidator; s.236

(b) the liquidation is deemed to have begun at the time (possibly several months earlier) when the petition was first presented.  If the compulsory liquidation follows voluntary liquidation already in progress (see Southard Case above) liquidation runs from the commencement of the voluntary liquidation: s.226.

(c) any disposition of the company's property and transfer of its shares subsequent to the commencement of liquidation is void unless the court orders otherwise: s.224.

(d) any legal proceedings in progress against the company are halted (and none may thereafter begin) unless the court gives leave.  Any seizure of the company's assets after commencement of liquidation is void: ss.225 and 228.

(e) the employees of the company are automatically dismissed.  The provisional liquidator assumes the powers of management previously held by the directors.

The assets of the company remain the company's legal property but under the liquidator's control unless the court by order vests the assets in the liquidator.  The business of the company may continue but it is the liquidator's duty to continue it with a view only to realisation, e.g. by sale as a going concern.  Any floating charge crystallizes.  Liquidation may invalidate charges and other previous transactions.


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