Association of Chartered Certified Accountants (ACCA) Certification Practice Test

Who can petition the court for a compulsory liquidation?

1. Only the shareholders of the company

2. Employees of the company

3. The company itself

4. Only external auditors

The correct answer is: The company itself

The ability to petition the court for compulsory liquidation lies primarily with the company itself. In most legal jurisdictions, this means that the company’s directors or authorized representatives can initiate the process. Compulsory liquidation is a legal procedure that typically occurs when a company is unable to pay its debts, and it often requires court intervention to formally dissolve the company and manage the distribution of its assets. When a company petitions for its own liquidation, it is indicating that it recognizes its inability to meet financial obligations and seeks to resolve its affairs through the legal system. This can be part of a strategy to manage creditor expectations and ensure an orderly process for closing down operations. In contrast, shareholders and employees do not have the authority to compel liquidation without the company's involvement in the petition. External auditors may provide financial assessments and reports relevant to the company’s financial health but cannot petition for liquidation themselves. Their role typically focuses on assessing financial compliance rather than initiating legal liquidation proceedings. Thus, understanding the implications of a company petitioning for its own liquidation reveals the mechanism of how the process functions and shows the importance of direct involvement by the company in this legal endeavor.