Association of Chartered Certified Accountants (ACCA) Certification Practice Test

When does a compulsory winding up order occur?

1. When a company decides to voluntarily liquidate

2. When a petition for a winding up order is presented to the court

3. When a company is acquired by another entity

4. When a company fails to file annual returns

The correct answer is: When a petition for a winding up order is presented to the court

A compulsory winding up order occurs when a petition for a winding up order is presented to the court. This legal process is initiated typically when a company is unable to pay its debts or is deemed insolvent. The court's involvement is crucial, as it ensures that the winding up process is carried out under judicial supervision, providing an orderly procedure for the distribution of the company's assets among its creditors. The other scenarios described do not lead to a compulsory winding up order. For instance, when a company decides to voluntarily liquidate, this is a proactive measure taken by the company's directors and shareholders, distinct from a court-ordered winding up. Similarly, when a company is acquired by another entity, it is not necessarily facing insolvency or court intervention. Failing to file annual returns may result in penalties or administrative actions, but it does not automatically trigger a compulsory winding up process. Therefore, the correct understanding of compulsory winding up is firmly associated with the court's involvement through a petition, which reflects a more judicial and formal approach to addressing a company's financial difficulties.