Association of Chartered Certified Accountants (ACCA) Certification Practice Test

Which entity can file a petition for compulsory liquidation?

1. The creditor

2. The shareholders

3. The company itself

4. The government

The correct answer is: The company itself

Compulsory liquidation, also known as involuntary liquidation, occurs when a court orders the winding up of a company’s affairs. Among the entities mentioned, the company itself is permitted to file for compulsory liquidation. This is often based on the premise that the company is insolvent and unable to pay its debts. In such circumstances, the company’s directors may decide it's in the best interest of its stakeholders to initiate the process through a court petition, thereby ensuring an orderly resolution of its financial obligations. While creditors can petition for liquidation when debts are unpaid, they do so based on the company’s financial status rather than at their discretion. Shareholders may express a desire for the company to liquidate but typically do not have the power to enforce this without the company's cooperation. The government can intervene in certain circumstances but generally does not have a direct role unless there are breaches of legal obligations. Thus, the ability of the company itself to file for compulsory liquidation is paramount, especially as it recognizes the company’s own acknowledgment of its financial situation and its need to address its obligations in a formal legal framework.