The answer is an unequivocal yes. If you’re having difficulty making payments to creditors such as suppliers, the bank or HMRC, it’s critical that you know all of your options before any actions are taken against your business for debts owed. Creditors can enforce compulsory liquidation in order to shut down your firm; however, there are many avenues available that may help turn things around and put you back on track. This article answers the question, Can a creditor put your company into liquidation? and What happens when a company goes into liquidation?
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What is compulsory liquidation?
If your business owes an outstanding debt in excess of £750, the creditor can take legal action to make you liquidate by filing a winding up petition. When this happens, you still have time on your side; both to settle the debt or contest it with legitimate reasons. If no payment is made nor disputes offered within reasonable timeframe, then the court may grant a winding up order which forces an immediate closure of your company and company affair’s.
The moment a winding up order is imposed on your business, the Official Receiver – who serves as the government’s insolvency practitioner – will become its liquidator. The purpose of this individual is to protect, preserve and sell all existing company assets along with collecting any outstanding debts that are owed to ensure creditors receive their payments. Once those steps have concluded, they will then dissolve the company so it ceases to exist.
Why might a creditor put my company into liquidation?
As a last resort, creditors will consider filing a winding up petition against your company if other efforts to collect the debt have proven unsuccessful.
Although creditors can legally try to shut down your business if you owe them £750 or more, it’s generally not worth their effort and expenditure unless the debt is significantly higher to liquidate a company.
The HMRC is the party that initiates a majority of compulsory liquidations in the UK – 60% to be exact. However, any creditor who holds an undisputed claim can file a winding up petition against you at their discretion to repay the company’s debts.
What is the compulsory liquidation process?
Generally, the initial step for a creditor is to issue an official statutory demand to your company. This provides you 21 days to pay off the debt and simultaneously confirms its legal existence. However, if you neglect this:
- Creditors can request a court-issued winding up petition, which will be given to your business’s registered address. On average, the date for the hearing is set 8-10 weeks after receiving the petition.
- You still have the opportunity to settle your debt in full or come up with a repayment plan with the petitioning creditor, but you must act immediately.
- After seven days, the petition against you will be announced in the London Gazette and everyone will know your situation. When this happens, all of your company’s banking accounts will become inaccessible, making it nearly impossible to cover expenses or keep trading.
- Your opportunities to delay the hearing are rapidly dwindling, so if you don’t act now, the hearing will be conducted at a High Court where your company could face a winding up order.
- The moment a winding up order is issued, you no longer have power over the company’s fate. A liquidator will be appointed to handle all matters concerning your remaining assets and use them to pay off creditors.
- The final responsibility of the liquidator is to remove the business from Companies House records, thus the company ceases.
How long does a compulsory liquidation take?
On average, the method from obtaining a winding up petition to completely shutting down your firm requires about three months. This is due to the seven days allocated for responding to said request, an 8-10 week wait for court proceedings and of course, the duration that it takes for a liquidator to officially close down the company.
Depending on the severity of the organization’s debts and how quickly their assets can be liquidated, liquidating a company may take longer than expected. Moreover, if directors lodge appeals against bankruptcy proceedings, this could further delay dissolution.
Can you stop compulsory liquidation?
For companies that have taken the right steps to remain financially solvent, there exists ample opportunity to improve their circumstances before being forced into liquidation. However, if an insolvent company then it can be wound up in this manner.
Have you been presented with a winding-up petition? To prevent the proceedings from being finalized, one solution is to pay off your debt entirely. Another possible remedy may come if a court agrees to adjournment when they see that you are able to settle the impending payment promptly. A Company Voluntary Arrangement (CVA) could be utilized as an avenue of escape from liquidation in such scenarios.
It is worth mentioning you shouldn’t take out any credits or loans while the company is insolvent, as you may be held personally liable for these debts if you are found guilty of wrongful or fraudulent trading.
To give insolvency experts more time to consider if company administration is the best choice for your business, you can request an adjournment. Another option could be pre-pack administration; a third party–sometimes it’s even the current directors–would purchase all of your business’ assets in that case.
Alternatively, you may take the route of seeking to have the petition negated on grounds such as an invalid debt claim, inaccurate details about the debt itself or improper service. If your request is granted by a court ruling, it could result in a dismissal for this particular case.
Need help protecting your business?
If a creditor has threatened to liquidate your company, or if you have received an official winding up petition, doing nothing is not the answer. Act quickly and contact our insolvency experts for immediate advice in complete confidentiality. We have our own in house licensed insolvency practitioner. Our team will help you make informed decisions that can save your business today!
In some liquidation cases company directors may also be able to claim for redundancy , provided they have been on the PAYE scheme. If there is any redundancy money this can also be used towards any liquidation costs.
Get in touch with us at Company Doctor on 0800 169 1536 or leave an enquiry on our website if you are having cash flow problems. Our team can discuss the liquidation process and help your insolvent business. Remember the company is a separate legal entity and you cannot be held personally liable unless you have personal guarantees.
The government has pages on liquidation here.
