Association of Chartered Certified Accountants (ACCA) Certification Practice Test

In a civil court proceeding for compulsory liquidation, who can file a petition?

1. Only government officials

2. Only business owners

3. Members and creditors

4. Any interested individual

The correct answer is: Members and creditors

In a civil court proceeding for compulsory liquidation, members and creditors have the right to file a petition. This is established under corporate law where stakeholders who have a direct financial interest in the company can initiate the liquidation process. Members, often referring to shareholders or partners in a business, have a vested interest in the company's performance and can seek liquidation if they believe the company is insolvent or unable to pay its debts. Similarly, creditors, who are entities or individuals to whom the company owes money, also have the standing to file a petition for liquidation in order to recover their debts. The rationale behind allowing both members and creditors to file a petition is rooted in protecting the interests of those directly involved with and affected by the company's financial state. By enabling these parties to act, the law facilitates a mechanism to address insolvency issues and to ensure that any remaining assets can be appropriately distributed to settle outstanding debts. Certain options would not typically be able to file a petition. For example, government officials or individuals who do not have a substantial interest or relationship with the company aren't given that right within the framework of compulsory liquidation proceedings. Thus, the option indicating that any interested individual may file is too broad and does not align with the legal standards set for such proceedings.