The quick answer
In most cases, if your business is being pushed into liquidation, it is normally because you owe someone (a creditor) more than £750. The easiest way to stop the process is simply by paying them in full.
The alternatives are a Court hearing if you dispute the debt, asking for an adjournment at the first Court hearing or by putting the company into Administration.
You can always try and bargain with the creditor and offer payment by instalments.
A winding up hearing is a Court hearing to decide whether or not your company should go into Compulsory Liquidation.
In more detail
How Does a Creditor put a Company into Liquidation?
Firstly there a few stages that a creditor (someone you owe money to) will have to go through to put you into liquidation. These are:
- Invoice you or have paperwork to prove a debt like a loan agreement.
- Issue a County Court Judgement (“CCJ”) for the unpaid debt. This means a Court hearing and it gives you a chance to dispute the debt or not. If you lose and do not pay in 14 days a CCJ will be entered against you.
- If creditors get a CCJ against you they can then ask the Court to enforce it by sending in a bailiff to remove your goods.
- Following this, the creditor should then issue you with a statutory demand. You have 21 days to then pay or 18 days to dispute it. A statutory demand is usually issued after a CCJ, but it can be issued without one.
- If you have still not paid, the creditor can apply to Court to wind you up. This is called a Compulsory Liquidation.
- You must be given 14 days written notice of the date of the winding up.
A creditor has to go through these steps, all the while serving letters to you at your registered office. Not only this, the creditor has to deposit £2,000 in Court as a deposit.
The most usual creditor to issue a winding up order is HM Revenue and Customs. They are not put off by the long process. They understand it and can afford the £2,000 deposit.
A Warning about Compulsory Liquidation
Even if you pay off a debt owed in full before the final Court winding up hearing, another creditor that you owe money to can step into the original creditor’s shoes and continue the hearing.
Also, once a winding up petition has been issued it will be advertised in the London Gazette. Once the bank see this they will freeze your bank account before the hearing date making it impossible to trade.
How Can You Prevent Compulsory Liquidation
The best ways to stop a compulsory winding up are:
- If you agree the debt and you have the funds pay it off in full.
- If you agree the debt but only have part of the money available, you can try and do a deal with the creditor to withdraw the petition and pay them back in instalments.
- Consider hiring a good solicitor. Make sure they have debt and insolvency experience.
- You can go to Court and fight the claimed debt yourself at the hearing but this is risky. If you lose you will be put into liquidation.
- You can go to Court and ask for an adjournment. This is easier on the first hearing but there is no guarantee the Court will agree to this.
- Offer to put your own company into liquidation. The creditor might accept this as it will save them the £2,000 deposit.
- Apply to go into Administration. This is often heard as an application at the same time as the winding up hearing.
Contact Us Today
If your business has cash flow problems and you are worried about Compulsory Liquidation we can help. Please contact me with any questions you have.